• Supermax’s 9MFY18 PATMI of RM97.2m (+57% yoy) was above our estimates making up 89%.

• Higher 9MFY18 PATMI mainly due to volume rise from greater production capacity as well as improved operational efficiency.

• Interim DPS of 3sen declared, bringing total DPS for FY18 to 6sen (vs FY17: 3sen).

• We raised our FY18/19/20F by 16%/18.6%/20% on higher expected sales volume and margin improvement.

• Reiterate HOLD call with higher TP of RM3.45 after rolling over to FY19 EPS with PER of 16x (3 years historical average).

Higher earnings on increased production and demand.

Supermax’s 9MFY18 recorded a strong PATMI of RM97.2m (+57% yoy) and higher margin (+2.4ppts yoy) despite stronger ringgit. We believe these were due to stronger global demand for gloves that allowed it to price its products at sustainable margins as well as improvement in operating efficiency gains from higher utilisation rate.

Performance qoq impacted by hike in natural gas

PATMI decreased 7% to RM33.4m due to time-lag in cost pass through arising from an increase in gas tariff by +23%. However, the cost increase has since been passed through to customer in March 2018.

Higher dividend declared

Supermax declared an interim DPS of 3sen which brings the total DPS declared for FY18 to 6sen (vs FY7: 3sen). We estimate full year DPS of 8sen, translating into dividend yield of 2.5%.

Outlook remains positive on volume growth.

HIgher capacity of c.30% from both Plant 10 (2.2bn pcs) and Plant 11 (3.4bn pcs) is expected to contribute to its FY18 earnings growth. Moving forward, Supermax is embarking on rebuilding and replacing older plants to extract higher production output as well as building a new plant with 2.2bn capacity (Plant 12) to cater for the increasing global demand. Upon full completion by the end of CY2019, it is expected to have an annual capacity of 27.2bn pcs (+ c.16%).

Maintain Hold with new TP of RM3.45

We raised our FY18/19/20F by 16%/18.6%/20% on higher revenue growth from stronger sales volume supported by new capacity expansion and higher margin assumptions on improving operating efficiency. We maintain Hold recommendation with new TP of RM3.45 (from RM2.40) based on PER of 16x (3 years historical average) after rolling over to FY19 EPS.

Source: BIMB Securities Research - 30 May 2018