Results going strong. Like other glove makers, Supermax reported commendable earnings for 9MFY12 although it was slightly hit by weaker contributions from its associates. Management guided that it is normal to have some competition from smaller players from time to time but assures that the company, with its strong footing in the glove manufacturing industry, is able to weather the challenges. In its most recent briefing, management again reaffirmed that Supermax is able to deliver 20% growth y-o-y.
Aggressive expansion plans on track. Glove makers are aggressively rolling out their expansion projects to stay competitive and Supermax is no exception. Its annual total capacity is expected to reach 21.5bn pieces per annum, of which 52% would be nitrile gloves. We learned that some teething issues in the projects have been resolved and Supermax is currently fast tracking all its expansion plans. Besides, the company is also expanding its National Distribution HQ in the US to carry additional product lines to cater to dental and science laboratories as well as to hospitals to penetrate into new markets.
Macro outlook for glove makers remains bright. We are maintaining our positive outlook on the sector in general, mainly attributed to favourable macro factors: i) demand for rubber remains sluggish mainly due to the slow recovery in global vehicle sales, therefore, we believe latex prices will remain weak, ii) weakening crude oil prices has led to lower butadiene prices and hence lower nitrile prices, iii) stabilised USD/RM exchange rate also favours glove makers and we still think that the increment in labour costs and gas prices may not post any significant impact towards their earnings.
Valuation increasingly more attractive. All the glove counters under our coverage have been performing relatively well in 2012 but Supermax has seemed to be lagging slightly behind compared to the others. At its current price of RM1.96, Supermax is trading at an undemanding PE of 10x, thus we find it more attractive in terms of valuation. Judging from the most recent acquisition of Latexx Partners at a PE of about 12x, we think Supermax justifies our valuation at a higher parameter of 13x PE given its stronger brand name and larger production capacity.
BUY, FV RM2.70. Amid the sector’s positive outlook, we are maintaining our earnings forecast and valuation for Supermax. We continue to like the company’s lead in the own brand manufactured products segment. The lagging performance of its share price makes its valuation even more attractive and presents an opportunity for investors to accumulate the stock at lower price levels.
Aggressive expansion plans on track. Glove makers are aggressively rolling out their expansion projects to stay competitive and Supermax is no exception. Its annual total capacity is expected to reach 21.5bn pieces per annum, of which 52% would be nitrile gloves. We learned that some teething issues in the projects have been resolved and Supermax is currently fast tracking all its expansion plans. Besides, the company is also expanding its National Distribution HQ in the US to carry additional product lines to cater to dental and science laboratories as well as to hospitals to penetrate into new markets.
Macro outlook for glove makers remains bright. We are maintaining our positive outlook on the sector in general, mainly attributed to favourable macro factors: i) demand for rubber remains sluggish mainly due to the slow recovery in global vehicle sales, therefore, we believe latex prices will remain weak, ii) weakening crude oil prices has led to lower butadiene prices and hence lower nitrile prices, iii) stabilised USD/RM exchange rate also favours glove makers and we still think that the increment in labour costs and gas prices may not post any significant impact towards their earnings.
Valuation increasingly more attractive. All the glove counters under our coverage have been performing relatively well in 2012 but Supermax has seemed to be lagging slightly behind compared to the others. At its current price of RM1.96, Supermax is trading at an undemanding PE of 10x, thus we find it more attractive in terms of valuation. Judging from the most recent acquisition of Latexx Partners at a PE of about 12x, we think Supermax justifies our valuation at a higher parameter of 13x PE given its stronger brand name and larger production capacity.
BUY, FV RM2.70. Amid the sector’s positive outlook, we are maintaining our earnings forecast and valuation for Supermax. We continue to like the company’s lead in the own brand manufactured products segment. The lagging performance of its share price makes its valuation even more attractive and presents an opportunity for investors to accumulate the stock at lower price levels.
Source: OSK
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