Supermax Corporation Bhd's pre-tax profit for its third quarter ended Sept 30, 2010, dropped to RM41.448 million from RM46.722 million in the same quarter last year due to weakening of the US dollar and high latex prices.

Its net profit in the quarter fell to RM38.117 million from RM40.150 million while revenue was down at RM235.104 million from RM237.562 million previously.

The group had sold more gloves during the quarter compared to the same period last year, reinforcing its view that demand remained robust, Supermax said in a statement today.

"However, although there was capacity growth, the continued weakening of the US dollar, which fell a further two per cent from US$1.00=RM3.24 to US1.00=RM3.16 during this period, suppressed further revenue growth this quarter," said Supermax's executive chairman and group managing director Datuk Seri Stanley Thai.

During the quarter, the industry experienced a continuation of high latex prices and weakening of the US dollar, he said.

"The escalation and increase in latex prices as well as the weakening of the US dollar were faster than the costs passed onto the product selling prices during this period and this took a tow on our profit levels for the reporting quarter," he said.

"We remain positive in overcoming these two challenges which are believed to be due to speculative forces and are temporary hence will eventually correct themselves."

The group has a pricing mechanism in place whereby any fluctuation in this cost component is factored into the pricing process for the group's rubber glove products, Thai said.

What this means is that effectively the cost increases can be passed on to customers, albeit with a short time lag, thus maintaining the group's profitability, he said.

The glovemaker is still looking at an overall good year where its nine-month cumulative profit after tax of RM135.47 million has surpassed the full-year profit after tax of RM126.58 million for financial year ended Dec 31, 2009.

Its nine-months pre-tax profit at RM144.563 million was higher than RM101.537 million recorded in the same period in 2009 while revenue rose to RM690.581 million from RM618.419 million previously.

The earnings before interests, tax, depreciation and amortisation margin also increased to 26.1 per cent for the nine-month period versus 25.6 per cent for 2009.

Basic earnings per share for the nine-month cumulative period was at 39.91 sen.

Supermax expects global demand and consumption of gloves to remain high and robust, driven by new usages for gloves as well as growing demand from developing countries that are growing more affluent and spending more on healthcare.

"Furthermore, the healthcare sector has increased in its importance where more and more countries are regulating their healthcare industry," Thai said.

For most of the current quarter, demand had largely normalised with delivery lead time of between 45 and 60 days compared to previously longer lead time of five months or more, especially during the height of the H1N1 scare, as a result of unusually high latex prices and buyers being away on summer vacation, Supermax said.

However, the return of buyers from their holidays coupled with the realisation that latex prices were unlikely to fall anytime soon has resulted in a sharp increase in buying activity, it said.

The group will continue to implement its expansion plan for the year and also in the following years with its Glove City project.

The new capacity expansion will be drawn in line with the demand and consumption growth rate to enable the group to reduce the delivery lead time in processing the orders and also to capitalise on the expected continuous increase in demand.

Supermax said it would continue to monitor the market closely to determine the speed of implementation of its Glove City project.

Capacity expansion would accelerate in line with the increase in demand, it said.

In line with the growing demand for nitrile gloves from the hospital and medical sectors, and where some nitrile powder-free glove prices are now lower than or equal to natural rubber latex powder-free glove prices, the group will be switching more of its production lines to produce nitrile powder-free gloves from the current 21 per cent to between 30 and 35 per cent of its total installed capacity. - Bernama