Bursa Malaysia Stock Watch
Supermax Corporation
kltrader
Publish date: Sun, 04 Jul 2010, 01:42 PM
kltrader
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RECOM Buy
PRICE RM5.88
? Maintain BUY. Supermax?s comments during its briefing at our Small to Mid Cap Conference were broadly in line with our expectations save for one negative surprise ? confirmation that the delivery of equipment for its new lines will be delayed by a few months. However, the group is steadfast in its belief that its capacity expansion to 17.6bn pieces this year is on target. Management also confirmed that its progressive expansion plans will lead to higher sales starting 2Q. We maintain our BUY call and hold the view that its upcoming quarters should at least match its 1Q earnings, helped by the progressive expansion and growing demand. These factors could extend the stock?s re-rating. Our target price remains intact at RM9.50, still pegged to 13.2x P/E or a 20% discount to Top Glove?s target P/E of 16.5x. The stock remains one of our top picks for the sector.
? Promising demand outlook. Supermax remains upbeat on its prospects, underpinned by the robust demand outlook. Global consumption of gloves is expected to continue growing at 8-10% annually. There should also be spillover effects from changes in healthcare regulations. Although North America currently dominates Supermax?s sales, management sees promising prospects for the South America and Asian markets, which currently make up only 16% and 6% of Supermax?s sales mix, respectively. For Asia, step-ups in healthcare reforms in the economic powerhouses of China and India are expected to create a new wave of growth.
? 2Q10 earnings to exceed 1Q10? During the presentation, management hinted that 2Q?s financial performance could be even better than 1Q?s core net profit of RM51.5m, thanks to newly installed capacity. But it is sticking to its FY10 earnings guidance of RM168m though it did qualify that this target could be revised upwards again in the coming quarters.
Supermax?s session during yesterday?s small-mid-cap conference was attended by some 28 buy-side analysts and fund managers. The presentation by its director of corporate affairs, Mr Denis Low, covered the group?s business model, financial performance and strategies. Also present were group accountant, Mr. Andrew Lim and accounts executive, Mr Edwin Yong. The subsequent Q&A session addressed queries on the group?s distribution business, its upcoming 2Q results and its product mix, among others.
Moving towards a more favourable product mix... Supermax is looking to expand the higher-margin OBM business from 65% of overall sales to 70% by next year (Figure 1). Management believes in having a strong brand name to promote stability, loyalty and consistency. The increasing dominance of the OBM business will largely helped by the group?s goal of entrenching its position in the dental and scientific laboratory market segment. Notably, Supermax is gunning for the top spot in the US dental market segment by next year. In 1Q10, it was the second largest vendor with an 8.6% share. The US dental market is estimated to be worth about US$700m-800m currently.
? and expanding distribution business too. Management sees promising prospects for the glove distribution business and wants to increase the share of this business from the current 40% to 45%. We gather that the margins for the distribution business are about 30-40%, much higher than the mid-teen margins reaped by its
manufacturing business.
Slight blips in expansion plans. Supermax indicated that there could be some bottlenecks in its expansion due to delays in the delivery of equipment for its new lines such as glove formers and conveyor chains. We are not surprised by this, having highlighted in previous sector reports that rubber glove manufacturers? expansion could be at risk of equipment delivery. Furthermore, Adventa had made a similar announcement last week. However, Supermax is steadfast in its belief that its capacity expansion to 17.6bn pieces this year is on target. Management also confirmed that its progressive expansion plans will lead to higher sales starting 2Q as the group is upgrading some of its older lines to improve efficiency.
2Q10 earnings to exceed 1Q10? During the presentation, management hinted that 2Q?s financial performance could be even better than 1Q?s, thanks to newly installed capacity. This is in line with our earlier prediction that the company?s remaining quarters could at least match its 1Q?s performance given its expansion and the growth in demand. To recap, Supermax reported 1Q core net profit of RM51.5m. But it is sticking to its FY10 earnings guidance of RM168m though it did qualify that this target could be revised upwards again in the coming quarters. In light of this, we make no changes to our forecast but will monitor the company?s performance closely.
Broadly in line. The company?s presentation and management?s comments were broadly in line with our expectations. The capacity holdup was not a major surprise and does not alter our forecasts as management expects sales to improve in the upcoming quarters, led by additional capacity and growing demand. Reiterate OUTPERFORM. As there are no change to our earnings forecasts, our target price remain at RM9.50, still pegged to 13.2x P/E or a 20% discount to Top Glove?s target P/E of 16.5x. We maintain our BUY call on Supermax as we expect the continued growth of global glove demand and the company?s capacity expansion to extend its re-rating. The stock remains one of our top picks for the sector. Investors with a high risk appetite can consider Supermax?s three call warrants.
Major Shareholders: %
Dato' Seri Thai Kim Sim, Stanley 20.4
Datin Seri Tan Bee Geok, Cheryl 15.1
By CIMB
Analyst:Terence Wong CFA
PRICE RM5.88
? Maintain BUY. Supermax?s comments during its briefing at our Small to Mid Cap Conference were broadly in line with our expectations save for one negative surprise ? confirmation that the delivery of equipment for its new lines will be delayed by a few months. However, the group is steadfast in its belief that its capacity expansion to 17.6bn pieces this year is on target. Management also confirmed that its progressive expansion plans will lead to higher sales starting 2Q. We maintain our BUY call and hold the view that its upcoming quarters should at least match its 1Q earnings, helped by the progressive expansion and growing demand. These factors could extend the stock?s re-rating. Our target price remains intact at RM9.50, still pegged to 13.2x P/E or a 20% discount to Top Glove?s target P/E of 16.5x. The stock remains one of our top picks for the sector.
? Promising demand outlook. Supermax remains upbeat on its prospects, underpinned by the robust demand outlook. Global consumption of gloves is expected to continue growing at 8-10% annually. There should also be spillover effects from changes in healthcare regulations. Although North America currently dominates Supermax?s sales, management sees promising prospects for the South America and Asian markets, which currently make up only 16% and 6% of Supermax?s sales mix, respectively. For Asia, step-ups in healthcare reforms in the economic powerhouses of China and India are expected to create a new wave of growth.
? 2Q10 earnings to exceed 1Q10? During the presentation, management hinted that 2Q?s financial performance could be even better than 1Q?s core net profit of RM51.5m, thanks to newly installed capacity. But it is sticking to its FY10 earnings guidance of RM168m though it did qualify that this target could be revised upwards again in the coming quarters.
Supermax?s session during yesterday?s small-mid-cap conference was attended by some 28 buy-side analysts and fund managers. The presentation by its director of corporate affairs, Mr Denis Low, covered the group?s business model, financial performance and strategies. Also present were group accountant, Mr. Andrew Lim and accounts executive, Mr Edwin Yong. The subsequent Q&A session addressed queries on the group?s distribution business, its upcoming 2Q results and its product mix, among others.
Moving towards a more favourable product mix... Supermax is looking to expand the higher-margin OBM business from 65% of overall sales to 70% by next year (Figure 1). Management believes in having a strong brand name to promote stability, loyalty and consistency. The increasing dominance of the OBM business will largely helped by the group?s goal of entrenching its position in the dental and scientific laboratory market segment. Notably, Supermax is gunning for the top spot in the US dental market segment by next year. In 1Q10, it was the second largest vendor with an 8.6% share. The US dental market is estimated to be worth about US$700m-800m currently.
? and expanding distribution business too. Management sees promising prospects for the glove distribution business and wants to increase the share of this business from the current 40% to 45%. We gather that the margins for the distribution business are about 30-40%, much higher than the mid-teen margins reaped by its
manufacturing business.
Slight blips in expansion plans. Supermax indicated that there could be some bottlenecks in its expansion due to delays in the delivery of equipment for its new lines such as glove formers and conveyor chains. We are not surprised by this, having highlighted in previous sector reports that rubber glove manufacturers? expansion could be at risk of equipment delivery. Furthermore, Adventa had made a similar announcement last week. However, Supermax is steadfast in its belief that its capacity expansion to 17.6bn pieces this year is on target. Management also confirmed that its progressive expansion plans will lead to higher sales starting 2Q as the group is upgrading some of its older lines to improve efficiency.
2Q10 earnings to exceed 1Q10? During the presentation, management hinted that 2Q?s financial performance could be even better than 1Q?s, thanks to newly installed capacity. This is in line with our earlier prediction that the company?s remaining quarters could at least match its 1Q?s performance given its expansion and the growth in demand. To recap, Supermax reported 1Q core net profit of RM51.5m. But it is sticking to its FY10 earnings guidance of RM168m though it did qualify that this target could be revised upwards again in the coming quarters. In light of this, we make no changes to our forecast but will monitor the company?s performance closely.
Broadly in line. The company?s presentation and management?s comments were broadly in line with our expectations. The capacity holdup was not a major surprise and does not alter our forecasts as management expects sales to improve in the upcoming quarters, led by additional capacity and growing demand. Reiterate OUTPERFORM. As there are no change to our earnings forecasts, our target price remain at RM9.50, still pegged to 13.2x P/E or a 20% discount to Top Glove?s target P/E of 16.5x. We maintain our BUY call on Supermax as we expect the continued growth of global glove demand and the company?s capacity expansion to extend its re-rating. The stock remains one of our top picks for the sector. Investors with a high risk appetite can consider Supermax?s three call warrants.
Major Shareholders: %
Dato' Seri Thai Kim Sim, Stanley 20.4
Datin Seri Tan Bee Geok, Cheryl 15.1
By CIMB
Analyst:Terence Wong CFA
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