Sunday, September 29, 2013

Supermax : Caught up with the peers (TA)

Supermax Corporation
12-month upside potential
Previous target price 2.10
Revised target price 2.75
Current price (as at 17 Sep) 2.73

 Caught up with the peers
Supermax’s share price has done very well over the last 2 months, appreciating 30% in a catch-up play. With its share price appreciating 43% YTD, we believe the catch up play has run its course. While we downgrade the glove sector from overweight to NEUTRAL following its stellar performance YTD, we take this opportunity to raise Supermax’s target P/E from 10x to 13x, in tandem with our P/E upgrade for our sector top pick, Kossan. This implies an approximately 20% valuation discount to both Top Glove and Kossan’s target P/E, given its lower earnings growth (3-year CAGR of 10.5%). All in, we maintain our NEUTRAL call on Supermax with a revised TP of RM2.75 (+30.9%), based on 13x 12-month forward P/E.


Supermax remains NEUTRAL amidst sector downgrade
The glove sector has appreciated 50.1%, significantly outperformed the FBMKLCI by 40 percentage points (ppt) since our upgrade to overweight on 3 Dec 2012. Our top picks, Kossan and Hartalega outperformed both Top Glove and Supermax, generating a handsome return of 117.6% and 50.6% during the period.

In terms of financial performance, glove companies delivered a mixed bag of results in 2QCY13, with one positive and one negative earnings surprises, while another two met expectations.

Among the four companies that under our coverage, Kossan registered the highest sales volume growth (+24.2% y-o-y, +0.9% q-o-q) in 2QCY13, followed by Hartalega (+22.8% y-o-y, +5.2% q-o-q), Top Glove (18.5% y-o-y, +6.5% q-o-q), and Supermax (+10.5% y-o-y, +2.5% q-o-q).

In terms of profitability, most of the glove makers registered weaker absolute PBT per thousand gloves in 2QCY2013 (q-o-q), except for Supermax which recorded a better absolute PBT due to higher ASP (+28.7% y-o-y, +0.4% q-o-q).

Heading into 4QCY13, we anticipate sector fundamentals such as, (1) stable latex cost, (2) stable USD against Ringgit, and (3) moderate capacity expansion, to remain intact.

Nonetheless, we believe market has largely priced in the positives that we advocate in the past, leaving limited upside for the sector as a whole. As such, we downgrade the sector from overweight to NEUTRAL.


Maintain forecasts
No change to our forecasts.


Remain NEUTRAL with a higher TP of RM2.75 (+30.9%)
Over the past 2 months, Supermax’s share price has caught up with its peers amid a sector re-rating.

With its share price appreciating 43% YTD, we believe the catch up play has run its course. While we downgrade the glove sector from overweight to NEUTRAL following its stellar performance YTD, we take this opportunity to raise Supermax’s target P/E from 10x to 13x, in tandem with our P/E upgrade for our sector top pick, Kossan.

This implies an approximately 20% valuation discount to both Top Glove and Kossan’s target P/E, given its lower earnings growth (3-year CAGR of 10.5%).

All in, we maintain our NEUTRAL call on Supermax with a revised TP of RM2.75 (+30.9%), based on 13x 12-month forward P/E.


Source/Extract/Excerpts/来源/转贴/摘录: TA-Research,
Publish date: 18/09/13

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