Saturday, August 24, 2013

Supermax : Super Laggard (MIB)

Supermax Corporation Berhad
52 week px range MYR1.79 – MYR2.44
Share price (MYR) MYR2.29
Super Laggard

Background: Supermax Corporation Bhd (SUCB) is leading international manufacturer, distributer and marketer of high quality medical gloves. The group currently exports to over 145 countries in the Americas, Europe, Asia and Oceania under its own brands like Supermax, Aurelia, Maxter, Medic-dent and Supergloves. SUCB is currently the second largest rubber gloves manufacturer in Malaysia, with an annual capacity of 17.8b pieces or ~11% of the world’s supply of rubber gloves. It has nine manufacturing plants in Malaysia and six distribution centres in USA, Brazil, Europe, Australia and Canada, in addition to 250 independent distributors worldwide.

Why are we highlighting this stock? Despite rising 8% in the past month, SUCB’s 19% YTD share price performance has underperformed its peers’ 43% YTD advance - led by Kossan (+73.5%) and Hartalega (+46.3%). Whilst Supermax and Top Glove are trading just above their 5-year mean forward PERs, Hartalega and Kossan are trading way above +1SD (see next page). Consensus estimates SUCB to report a net profit of MYR137m in FY13 and MYR156m in FY14, translating to a 3-year CAGR of 12% from 2012-15. It is trading at a prospective CY14 PER of 9.9x, some 36% lower than its peers’ average of 15.4x. We expect the discount to narrow as SUCB’s earnings recover into 2014, deriving a target price of MYR2.78 based on 12x FY14 PER (a 22% discount to the industry average).

Flat sequential growth. 1Q13 net profit of MYR31.8m (+14% YoY, -1% QoQ) came in at 23% of consensus FY13 estimates, affected by weak volume growth (+8.7% YoY, +1% QoQ) whilst EBIT margins fell 1.4ppt QoQ to 11.2% as a result of the minimum wage policy and lower ASPs in the nitrile segment due to increased competition. This was offset by a lower tax rate of 12.8% in 1Q13 vs 24.6% in 4Q12, which helped cushion the QoQ decline in earnings. Strong global demand, capacity expansion and better
product mix are growth catalysts while stable raw material prices and a strengthening USD will support margins going forward.

Expanding capacity and product range. We expect stronger sequential growth in subsequent quarters from its surgical glove capacity expansion at the Sg Buloh plant and additional nitrile capacity at Meru. Annual capacity for surgical gloves will rise from 174m to 336m pieces by 2014, boosting revenue by ~USD65m and net profit by USD10m p.a. (based on 15% profit margins). However, insufficient sterilization facilities for surgical gloves may lower utilisation levels. Meanwhile, annual nitrile capacity will rise from 5.9b to 12.3b pieces (52% of total capacity) by mid-2014. Elsewhere, SUCB is also setting up a MYR20m national distribution centre in Chicago to support its growing U.S. business which, together with Latin America, contributes ~55% of the group’s total glove sales.

Improving margins. SUCB is spending ~MYR66m to complete the automation of its manufacturing plants by 2015. This will contribute to future labour cost savings of
~MYR27m p.a. (50% of existing labour cost). Margins are also likely to expand going forward given the current low latex price of ~MYR6.00/kg (-17% YoY) and weakening Ringgit (-9% YTD). A 1% depreciation of the Ringgit against the USD will add 1-2% to its net profits.

Source/Extract/Excerpts/来源/转贴/摘录: Maybank-Research,
Publish date: 22/08/13

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