Supermax Corporation - 9MFY12 within expectations

Period    3Q12/9MFY12

Actual vs. Expectations  The reported 9M12 net profit of RM89.6m was in line with our expectations, accounting for 72.6% of our estimate of RM123.5m. Vis-à-vis the consensus estimate of RM129.8m, the results appear slightly lower at 69.0% of the number.

Dividends   Declared a first interim tax exempt dividend of 2 sen per share. The ex-date has been set on 18/12/2012 and the payment date is on 20/12/2012. We believe the full year net dividend per share could beat our full year net dividend per share estimate of 3.6 sen.

Key Results Highlights  QoQ, the revenue and net profit grew 5.8% and 5.3% respectively. The rise was mainly attributed to the consolidation of Supermax Healthcare Canada Inc after it became a subsidiary during the quarter as well as the higher revenue from the sales of surgical gloves.

 YoY, the revenue however declined by 9.5% while net profit improved slightly by 2.2%. The lower revenue was largely because of the lower average selling prices (“ASPs”) achieved for its products of between 11% and 22% in tandem with the lower raw material costs. Latex and nitrile prices dipped 31% and 37% respectively during the same period of time. Due to the faster decline in these raw material costs, the net margin improved from 11.4% to 12.9%. However, profitability would have been higher if not for the significantly lower contribution from the associate companies (see overleaf for details). The share of profits from these associated companies fell by 63% or RM5.6m to RM3.34m as they were affected by currency conversion losses as well as having to face a fiercely competitive market as new players tried to gain market shares.

 YTD, the revenue dipped marginally by 3.3% but the net profit recorded a growth rate of 15.1%.  These were due to the abovementioned reasons.

Outlook    (see overleaf for details)

 Despite the slowdown in the Eurozone and US, the demand for natural and nitrile gloves remains robust.

 Its move into automation, which in-line with other industry players, will eventually lead to better operation efficiency and hence profit margins. 

 Raw material costs are expected to remain stable if not declining further for the rest of the year.  

 An expansion of its surgical and nitrile gloves capacity bodes well.

Change to Forecasts    No change to our estimates. Our FY12E-FY13F net earnings remain unchanged at RM123.5m-RM144.8m.

Rating    MAINTAIN MARKET PERFORM

Valuation    Our TP of RM2.20 remains unchanged. This TP represents a 10.3x PER to our FY13F EPS of 4.3 sen.

The targeted PER is in line with the +1SD level above the 2-year Forward PER mean.  

Risks   Higher latex prices and a stronger ringgit.

Source: Kenanga