- Supermax Corp Bhd’s (Supermax) executive chairman and
group managing director, Datuk Seri Stanley Thai, was quoted in a local daily
today saying the company is looking for a suitable location in South America to
set up production facilities.
- This comes after governments in the region imposed a 35%
duty on imported natural rubber examination gloves. At present, it commands 70%
of the Brazilian glove market together with Top Glove Corp (BUY, FV:
RM6.50/share).
- We understand that Supermax’s initial investment entails
the building of a factory with an expected installed annual capacity of 2.4bil
pieces from at least 20 production lines (~120mil pieces per line per annum).
In comparison, its current capacity of 17.8bil pieces per annum from 157 lines
translates to 113mil pieces per annum.
- We note that this development is not new and that Supermax
has already announced its intention to penetrate new markets in Latin America,
including Mercosul Free Trade Agreement countries (Argentina, Brazil, Paraguay
and Uruguay) and Andean Community of Nations countries (Bolivia, Columbia,
Ecuador and Peru), through various strategies, including the setting up of
manufacturing plants there.
- We believe this expansion is positive for Supermax as it
is in-line with the company’s strategy of focusing on its downstream activities
and protection of its market share in the region.
- However, we remain cautious as no time. line was given.
With Supermax yet to find a suitable location/country and factory construction
time, we gather that any contribution to earnings will probably be sometime in
FY15/16, at the earliest.
- In the meantime, Supermax will be kept busy with its
current capacity expansion at Lot 6058 and Lot 6059 (both for nitrile gloves),
Glove City (Phase 1, FY14F) and expansion of its National Distribution
Headquarters in the US.
- Maintain our HOLD recommendation on Supermax with a fair
value of RM2.20/share for now, pending concrete details.
Source: AmeSecurities
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