• Supermax’s FY18 PATMI of RM107m (+59% yoy) came below our and consensus estimates at 85% and 83% respectively due to weaker than expected 4Q earnings resulting from higher costs

• 4QFY18 PBT fell 48% qoq to RM23.4m which we believe was due to higher butadiene raw material prices and inability to fully pass on the higher natural gas

• Proposed final DPS of 2sen for FYE18 and bonus issue of 1:1 for up to 680.2 million new ordinary shares.

• No adjustment made to our earnings. However, our target price is currently under review.

FY18 PATMI below expectation

Supermax’s FY18 PATMI grew 59% to RM107m but was below our and consensus full year forecast at 85% and 83% respectively due to unexpected weak 4Q earnings resulting from higher costs. Overall FY18 revenue rose to RM1.3bn (+16% yoy) due to capacity increase from Plants 10 (2.2bn pcs) and 11 (3.4bn pcs). In tandem with overall improvement in operating efficiency PATMI margin gained 2 ppts to 8.2% in FY18.

Lower qoq performance

Supermax’s 4QFY18 PBT fell by 48% qoq as margin dropped by 6.8ppt to 7.1%. We believe this was due to higher nitrile butadiene raw material prices (+c.18% qoq) and inability to fully pass on the higher fuel cost i.e. natural gas (+22%). Additionally, higher effective tax rate of 51% compared to 25% in 3QFY18 derailed PATAMI to RM9.8m (- 70.5%). As a result, PATMI margin dropped 7.2 ppts to only 3%.

Proposed of dividend and bonus issues

Supermax proposed a final DPS of 2sen for FYE18 which will bring the total DPS for FY18 to 8sen (vs FY17: 5.5sen). The group also proposed a 1-for-1 bonus issue of up to 680.2 million new ordinary shares based on an entitlement date that will be determined later. This is positive as it will improve trading liquidity in the stock.

Outlook remains intact with TP pending review

Moving forward, we believe the company would be able to maintain strong revenue growth supported by resilient global demand, higher production capacity and a stronger USD. 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%). We make no adjustment to our earnings forecast at this juncture; however our target price currently under review.

Source: BIMB Securities Research - 30 Aug 2018