Strong growth but low P/E
Supermax is currently experiencing a high utilisation rate and aggressive expansion will enable the company to ride the strong demand for nitrile gloves.
Under our revised rating structure, our call changes from Outperform to Add. We continue to like the company for its strong growth, fast response in increasing nitrile capacity and attractive valuation. Our target price remains based on 13.5x CY15 P/E (30% discount to Hartalega‘s P/E).
New plants to commence operation in 1Q14
Supermax‘s new manufacturing facilities, namely plants 10 and 11, are targeted to commence operations in 1Q14. These two plants will have the capability of producing up to 12.3bn pieces of nitrile gloves/annum (current overall nitrile capacity is 6.9bn pieces/annum – is this what u mean), increasing its nitrile capacity to 53% from 39% currently. We understand that the take-up rate for its new capacity is so high that the company will face capacity constraints without future expansion.
New land acquired
As it will face capacity constraints soon, the company recently acquired a 100-acre piece of land. The plan is to use 60% of the land for the immediate expansion of nitrile capacity while the remaining 40% will be sold or leased to the glove sector‘s supporting industries. The new plants on the said land will be developed in two phases at a total cost of RM700m-RM750m. Phase 1 is targeted for completion in 2018, with total capacity of 10.85bn gloves/annum, while phase 2 will complete in 2022, with total capacity of 4.65bn gloves/annum. Since the gas shortage issue has been resolved, Supermax will also continue with its expansion in Glove City, which will add another 24.6bn gloves p.a. to its nitrile capacity in 10-12 years.
Building own distribution
The company is aggressively building its own distribution network for its in-house brands, going online, via joint investments with large rubber glove distributors, etc. Canada, Brazil, UK and USA are the main focus areas for the group. It is also setting up offices in strategic locations in emerging markets. In USA, Supermax has set up a national distribution headquarters, which enables it to carry additional product lines to cater to different markets
Publish date: 10/12/13