- We reaffirm our HOLD rating on Supermax but place our fair value of RM2.15/share under review pending an analyst briefing next week.

- Supermax reported its 9MFY13 results, which met 72% of our and 75% of consensus expectations. The nine-month earnings of RM104mil (+16% YoY) came on the back of a 30% rise in turnover to RM935mil.

- The group’s better 9MFY13 performance can be attributed to additional capacity from its new and refurbished lines, lower input costs (latex and nitrile prices are down by 16%-18% YTD), increased plant efficiency (mostly automated save the stacking and packaging process) and an improving product mix.

- Despite registering a 14% QoQ fall in its revenue, the group’s 3QFY13 earnings remained stable at RM36mil (+1% QoQ) thanks to an encouraging EBITDA margin expansion of 3ppts to 16%.

- We gather that the softer topline was due to lower ASPs as well as higher downtime as the group accelerated its automation program. This was mitigated by a continuous decline in raw material prices (latex: -6% QoQ; nitrile: -7%), cost-control measures and a lower effective tax rate.

- True to its tradition, Supermax declared a tax-exempt interim dividend of 2 sen/share. This makes up 31% of our FY13F gross DPS forecast, and is based on a management-guided payout ratio of 30%. Yields are at ~2.4%.

- Earnings aside, we believe a key re-rating catalyst for the group lies in its ability to smoothly execute its “Supermax Business Park” project. Earlier this month, the group announced the purchase of a 100-acre land in Serendah for RM78.4mil, where it plans to build 40 new production lines that will raise its installed capacity by 15.5bil pcs p.a. (9-year CAGR of 6%) by 2022.

- While the land purchase is positive in the longer term (contribution to only come in FY15F at the earliest), we note that Supermax faces the burden of ensuring a high take-up rate by supporting industries for 40% of the buildable land. In addition, we have yet to ascertain if the land is free of any infrastructure connectivity issues.

- No change to our forecasts at this juncture as we await further details on its expansion plans. At present, we understand that capacity from Plant 10 and Plant 11 (together: +5.4bil pcs p.a. of nitrile gloves) should come on-stream in the beginning of 1QFY14 after a 6-month delay while the group is now targeting a 3QFY14 construction commencement for its Glove City project (previously, 1QFY14).

Source: AmeSecurities