Wednesday 29 February 2012

SUPERMX (FV RM2.50 - BUY) FY11 Results Review: A Stable Quarter


Supermax’s FY11 results were within expectations. Its revenue was quite flattish q-o-q as the higher sales volume was offset by the lower selling price of gloves. However, its net profit was lower q-o-q due to the continuous stiff competition as well as lower contribution from its associates. We are downgrading our FY12 earnings by 9% since latex price continues to be high and we expect some negative impact on its demand growth as well as a potential price war. Maintain Buy but with a lower fair value of RM2.50.

Within expectations. Supermax’s FY11 results were within consensus and our expectations, making up 95% and 100% of FY11 forecasts. Its 4QFY11 revenue of RM276.2m was quite flattish q-o-q as the higher sales volume was offset by the lower selling price of glove since latex price was lower in 4QFY11 versus 3QFY11 at RM7.25/kg versus RM8.67/kg. However, the 4QFY11 net profit of RM28.2m was 8.9% lower q-o-q due to the 70% cost pass following the continuous stiff competition as well as lower contribution from its associates. Finally, on a YTD comparison, its FY11 revenue of RM1,026.9m was higher by 5.1% due to the higher selling price as a result of higher latex price in FY11 versus FY10 at RM8.95 versus RM7.47 and higher sales volume of gloves sold as a result of bigger capacity. Nevertheless, its FY11 net profit of RM106.0m was again lower by 33.2% due to  margin erosion from strong competition, lower associates contribution and investment bond written off.

Downgrading FY12 earnings by 9%.  Earlier, we had expected the latex price to stay within the RM7.00/kg range but unfortunately, the price has shot past this level due to the news of  hard rubber  floor price support by the Thai Government at RM11.84/kg (latex expected to be about RM7.10/kg with the assumption of having 60% hard rubber content and the balance 40% water). Latex price also rose driven somewhat by the rise in oil price due to tensions in Iran, causing its direct substitute, nitrile latex, to also  be  on  a rising trend since it is a by-product of oil. Hence, we think this would negatively impact demand growth going forward and may eventually lead to some price war to move out rubber glove inventories.

Maintain Buy. Our fair value for Supermax has been downgraded to RM2.50 (previously RM2.75) based on existing PER of 13x FY12 EPS. We continue to like the company for its attractive valuation as well as operating in a recession proof industry. Also, Supermax has declared an interim dividend of 1.8sen.

Source: OSK188

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