• Overview. 4QFY19 PATMI increased 58.9% yoy to RM15.1m on the back of low base in 4QFY18, higher gloves sales and lower effective tax rate. On qoq basis, PATMI declined 56.5% due to sharp rise in NR latex prices (+23%) and greater competition in certain markets.

• Key highlights. Replacement and rebuilding programme of Supermax older plants, as well as construction of latest plant 12 allowed it to capitalize on continued global glove demand. Additionally, revenue was supported by current weak ringgit. In respect of contact lens business, Supermax acquisition of Clayton Dynamics Co. Ltd provides the group with strategic access to Japan’s cosmetic lens market, which is one of the world’s largest.

• Against estimates: Inline. FY19 net profit grew 16% yoy. The result was in-line with our estimates at 96% but trailed consensus at 94%.

• Outlook. Supermax’s long term outlook in our view, is positive on expected strong global demand supported by capacity expansion c.25% to 27bn pcs pa by FY20 (refer table 2) and current weak ringgit. The group also has greater flexibility and stability with its balanced product mix (NBR: 52%, NR: 48%). Its cost remains manageable with profit margin expected to be stable at c.8-9% level underpinned by lower NBR raw material prices, ongoing cost efficiency efforts and automation, based on our estimates.

• Our call. Our earnings forecast remains unchanged. BUY call with TP of RM1.80 based on unchanged 17x PER pegged on FY20 EPS.

Source: BIMB Securities Research - 3 Sept 2019