Supermax’s 9MFY12 earnings were largely in line with our and street estimates, but could have been better if not for the weaker showing from its associate companies. Despite a weaker average selling price due to the drop in raw material prices, it still managed to squeeze out higher margins from cost savings. The company’s expansion plan is progressing well and the operating environment remains positive. Thus, we remain positive on Supermax’s future outlook. Maintain BUY, with an unchanged FV of RM2.70.
Largely in line with expectations. Supermax’s net profit of RM89.6m for 9MFY12 was largely in line with our and consensus estimates, at 70.2% and 69.0% of the respective FY12 forecasts. The results could have been better if not for the lower contribution from its associate companies (-54.5% q-o-q), which saw a sharp depreciation of their respective local currencies against the MYR and USD, as well as the intense competition from new players. Nevertheless, thanks to the steady easing of raw material prices and the stabilizing USD/MYR exchange rate, the company recorded a net profit growth of 5.3% q-o-q and 2.3% y-o-y.
Expansion plans to boost future earnings. We believe Supermax’s earnings will continue to be healthy for the coming quarters with its aggressive expansion plan, which feature the following: (i) five of the seven surgical glove production lines have been commissioned since May 2012 while the remaining will be commissioned in stages, (ii) the fast-tracking of its nitrile glove production lines, which is expected to increase total capacity to 12bn pieces p.a. (vs the current 5.2bn pieces p.a.) by the fourth quarter of 2013, (iii) Phase 1 expansion of its National Distribution Headquarters in US incorporating the construction of the East Building is progressing well and the facility is expected to be operational by May or June 2013. The company has also fast-tracked its automation programme to reduce its dependence on foreign labor, which may lead to some output loss but which we deem a necessary step for future gain.
Outlook still positive. We continue to remain positive on Supermax’s future outlook, as the group is operating against a backdrop of a favorable operating environment for glove makers in which: (i) players are benefitting from the steady easing in the prices of raw materials, (ii) the MYR remains competitive, (iii) the global demand for rubber gloves is still resilient, and (iv) the potential increment in gas and labor costs may only minimally affect glove makers.
FYE Dec (RMm)
|
FY09
|
FY10
|
FY11
|
FY12f
|
FY13f
|
Revenue
|
803.6
|
977.3
|
1,021.4
|
1,135.5
|
1,286.1
|
Net Profit
|
126.6
|
158.9
|
104.2
|
127.6
|
137.8
|
% chg y-o-y
|
-1.0%
|
21.6%
|
4.5%
|
11.2%
|
13.3%
|
Consensus
|
-
|
-
|
-
|
129.8
|
148.0
|
EPS
|
24.2
|
24.0
|
15.7
|
19.2
|
20.8
|
DPS
|
11.0
|
7.5
|
4.8
|
5.8
|
6.2
|
Dividend yield (%)
|
5.5%
|
3.7%
|
2.4%
|
2.9%
|
3.1%
|
ROE (%)
|
26.0%
|
25.4%
|
14.3%
|
15.7%
|
15.2%
|
ROA (%)
|
13.4%
|
15.8%
|
9.2%
|
10.2%
|
10.1%
|
PER (x)
|
8.3
|
8.4
|
12.8
|
10.4
|
9.7
|
BV/share
|
0.82
|
1.02
|
1.13
|
1.26
|
1.40
|
P/BV (x)
|
2.45
|
1.98
|
1.78
|
1.59
|
1.43
|
EV/EBITDA (x)
|
9.5
|
9.0
|
9.0
|
7.3
|
6.2
|
Results Table (RMm)
FYE Dec
|
3QFY12
|
2QFY12
|
Q-o-Q chg
|
YTD FY12
|
YTD FY11
|
Y-o-Y chg
|
Comments
|
Revenue
|
245.5
|
232.1
|
5.8%
|
726.1
|
750.7
|
-3.3%
|
Lower y-o-y mainly due to declining raw material prices
|
EBIT
|
33.2
|
28.6
|
15.9%
|
86.2
|
63.4
|
35.8%
|
Margin improved due to cost savings from lower raw material costs
|
Net interest expense
|
-2.7
|
-2.7
|
-0.3%
|
-7.9
|
-10.2
|
22.6%
| |
Associates
|
3.3
|
7.3
|
-54.5%
|
19.6
|
30.5
|
-35.6%
|
Weaker contribution on a q-o-q basis due to depreciation in their respective local currencies against the MYR and USD
|
PBT
|
33.8
|
33.3
|
1.6%
|
97.8
|
83.6
|
17.0%
| |
Tax
|
-2.2
|
-3.3
|
-32.0%
|
-8.2
|
-5.8
|
42.6%
| |
MI
|
0.0
|
0.0
|
n.m.
|
0.0
|
0.0
|
n.m.
| |
Net Profit
|
31.6
|
30.0
|
5.3%
|
89.6
|
77.9
|
15.0%
|
Largely in line with our and consensus estimates
|
EPS (sen)
|
4.65
|
4.41
|
13.17
|
24.59
| |||
DPS (sen)
|
2.00
|
0.00
|
2.00
|
3.00
|
The Board has declared a first interim tax-exempt dividend of 2.0 sen
| ||
EBIT margin (%)
|
13.5
|
12.3
|
11.9
|
8.4
| |||
NTA/share (RM)
|
1.20
|
1.15
|
1.20
|
1.06
|
Maintain BUY, FV unchanged. We think that Supermax may still be able to report healthy earnings growth in the future. That, together with our upbeat outlook for the sector, rationalizes our decision to maintain a BUY recommendation, with the stock’s FV unchanged at RM2.70, pegged to 13x FY13 PE.
Figure 1: Natural rubber latex’s price movement
Source: Bloomberg, OSK Research
EARNINGS FORECAST
FYE Dec (RMm)
|
FY09
|
FY10
|
FY11
|
FY12f
|
FY13f
|
Turnover
|
803.6
|
977.3
|
1,021.4
|
1,135.5
|
1,286.1
|
EBITDA
|
162.9
|
174.7
|
177.4
|
207.4
|
230.5
|
PBT
|
151.5
|
183.8
|
112.1
|
149.1
|
168.5
|
Net Profit
|
126.6
|
158.9
|
104.2
|
127.6
|
137.8
|
EPS
|
24.2
|
24.0
|
15.7
|
19.2
|
20.8
|
DPS
|
11.0
|
7.5
|
4.8
|
5.8
|
6.2
|
Margin
| |||||
EBITDA (%)
|
20.3
|
17.9
|
17.4
|
18.3
|
17.9
|
PBT (%)
|
18.8
|
18.8
|
11.0
|
13.1
|
13.1
|
Net Profit (%)
|
15.8
|
16.3
|
10.2
|
11.2
|
10.7
|
ROE (%)
|
26.0%
|
25.4%
|
14.3%
|
15.7%
|
15.2%
|
ROA (%)
|
13.4%
|
15.8%
|
9.2%
|
10.2%
|
10.1%
|
Balance Sheet
| |||||
Fixed Assets
|
564.1
|
620.3
|
664.4
|
643.9
|
622.0
|
Current Assets
|
381.2
|
445.1
|
541.1
|
660.8
|
791.3
|
Total Assets
|
945.2
|
1,065.4
|
1,205.4
|
1,304.7
|
1,413.3
|
Current Liabilities
|
213.7
|
219.7
|
277.7
|
287.6
|
299.6
|
Net Current Assets
|
167.5
|
225.3
|
263.3
|
373.2
|
491.8
|
LT Liabilities
|
172.7
|
154.1
|
158.7
|
158.7
|
158.7
|
Shareholders Funds
|
558.8
|
691.5
|
769.1
|
858.4
|
954.9
|
Net Gearing (%)
|
31.5%
|
28.7%
|
29.4%
|
16.8%
|
6.7%
|
Source: OSK
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