• Supermax is proposing a 1:1 bonus share issue of up to 1,360.3m new shares for existing shares held at an entitlement date to be determined later. This is to reward shareholders and improve trading liquidity.
• The exercise will see a dilution in Supermax’s FY21F EPS to 52.7sen and ex-bonus adjusted TP of RM10.00 (from current TP of RM20.00).
• Supermax’s prospect remains positive backed by continued strong demand and higher ASPs as the global Covid-19 cases continued unabated.
• Maintain BUY with TP of RM20.00 based on 19x PER pegged on FY21 EPS.

Proposed 1 for 1 bonus issue.

Supermax has proposed a bonus issue of up to 1,360.3m new shares on the basis of one bonus share for every 1 existing Supermax’s share held at an entitlement date to be determined later. As at July 7 2020, the company’s issued share capital was RM340.1m comprising 1360.3m shares (including 68.9m treasury shares). This will double the enlarged number of shares to 2,720.6m upon completion. The proposed bonus issue is expected to be completed by the end of 4Q2020.

Bonus will increase liquidity

We view this move as positive. The exercise serves as a reward for Supermax existing shareholders as well as enhance the shares trading liquidity. There will be dilution in the group’s FY21F EPS from 105.3sen to 52.7sen. The theoretical price of ex-bonus (based on our TP of RM20.00) will be RM10.00.

Outlook remain strong

Our bullish outlook on Supermax remains, given strong demand visibility to continue into 2021 and higher ASPs. This is supported by increasing number of global infections including resurgent cases with latest report indicating over 1 million infections within 100 hours.

Maintain BUY with TP RM20.00.

Maintain BUY with TP of RM20.00 (ex-bonus adjusted priced of RM10.00). Our valuation is based on PER of 19x (+1.5SD above 5-yrs historical forward mean) and pegged on astronomical growth of 209% yoy in FY21 EPS to 105.3 sen. We continue to like Supermax due to i) higher yield from OBM distribution business model, ii) aggressive expansion plan to benefit from the pandemic with 2-yrs CAGR (2019- 2020) of c.22% compared to sector average of c.16% and iii) constant evolution activities (e.g. automation and cost efficiency).

Source: BIMB Securities Research - 20 Jul 2020