SUPERMX (FV RM2.50 - BUY) 1QFY12 Results Review: Another Stable Quarter

Supermax’s 1QFY12 results were within expectations. Overall, the numbers were flat q-o-q despite a 10% drop in 1QFY12 revenue as customers opted for  thinner gloves,  for  which  the  selling prices are lower. However,  the company achieved better cost efficiency, which partly mitigated the drop and led to a flat  net profit growth.  Although the current  quarter’s results only made up 22% of our FY12 forecast, we are  leaving  our forecast unchanged as we  see  better results  in the upcoming quarters, boosted by a bigger production capacity,  the introduction of new gloves, a stronger USD/MYR and lower latex prices. Maintain Buy.

Within expectations. Supermax’s 1QFY12 results were within consensus and our expectations, making up 22% of our FY12 forecasts. Overall, the results remained quite flattish q-o-q, with both the 1QFY12 revenue and net profit of RM248.5m and RM28.0m marginally down by 10.0% and 0.6%.  Revenue fell as  its customers  opted for  thinner natural rubber and nitrile gloves, causing selling prices to weaken. However, we  believe that the net profit still came in flat q-o-q despite a 10% drop in revenue, attributed to the glove maker achieving higher cost efficiency as it moves up the learning curve in relation to the production of thinner gloves, which we understand have been in demand since 2 years ago. Finally, on a YTD comparison, both the revenue and net profit were up 3.0% and 14.8%  respectively,  contributed by the higher sales of gloves sold as  its production capacity expanded and as the company became more efficient.

No change to our FY12 earnings forecast. Although 1QFY12 results only made up 22% of our FY12 forecast, we are keeping our earnings forecast unchanged for now as we expect improved quarterly performance  in the upcoming quarters, contributed by the bigger production capacity and introduction of new product lines (new gloves). Also, given the ongoing economic crisis in Europe, the industry may continue to see a stronger USD/MYR and the prices of commodities such as latex price trend lower.  On the other hand, as in any economic crisis, sales volume may also be affected since about 30% of Supermax’s  rubber gloves are sold to  Europe. However,  we  are of the view hat  the favorable exchange rate and lower production cost would more than compensate for the lower sales volume.

Maintain Buy. Our fair value for Supermax remains unchanged at RM2.50, based on the existing PER of 13x FY12 EPS. We continue to like the company’s attractive valuation as well as recession-proof nature of the industry it is in.

Source: OSK