• Supermax’s 1QFY18 PATMI of RM27.9m was above our estimates making up 31.7%.

• PATMI grew 42.8% yoy due to higher output from factory upgrades, higher ASP as well as stronger USD against MYR.

• QoQ PATMI improved due to lower raw material prices as well as lower effective tax rate.

• We raised FY18 and FY19 forecasts by 11% and 8.5% respectively on higher expected sales volume and higher margins assumptions.

• Reiterate HOLD call with new TP of RM2.18 from RM1.90 based on PER 15x.

Higher earnings on increased production and demand

Revenue increased by 16% yoy on the back of higher output and ASP as well as stronger USD vs MYR. In tandem, PATMI grew higher by 42.8% yoy attributed to improved efficiency and productivity which involved upgrading older lines and streamlining work processes. As such, EBITDA margins expanded by 4ppt.

Improved qoq performance

On qoq basis, revenue was largely flat but PBT increased 12.8% due to lower raw material prices (Natural rubber latex prices fell 2.8% from year high) and continued efficiency improvement. PATMI increased >100% due to lower effective tax rate qoq.

Outlook positive on strong demand and stable input costs

Global demand remains strong from greater hygiene and healthcare awareness. Additionally, government clampdown on vinly gloves production in China due to highly polluting nature issues also assisted demand for natural rubber and nitrile gloves. Supermax is on track to exploit these opportunities through their ongoing upgrading and refurbishment of their plants. Upon completion of upgrading works which is expected to be fully completed by 2HFY19, production would increase to 25.8bn pieces p.a. from current 23.4bn p.a. Furthermore, margin is expected to improve from a stabilized raw material prices and better cost management.

Maintain Hold with new TP of RM2.18

We raised our FY18 and FY19 earnings forecasts to RM98.6m (+11%) and RM108.2m (+8.5%) respectively on higher revenue growth from stronger sales volume and higher margin assumptions. We maintained Hold recommendation with new TP of RM2.18 (from RM1.90) based on unchanged PER of 15x.

Source: BIMB Securities Research - 22 Nov 2017