Supermax's FY11 results were within expectations. Itsrevenue was quite flattish q-o-q as the higher sales volume was offset by thelower selling price of gloves. However, its net profit was lower q-o-q due tothe continuous stiff competition as well as lower contribution from itsassociates. We are downgrading our FY12 earnings by 9% since latex pricecontinues to be high and we expect some negative impact on its demand growth aswell as a potential price war. Maintain Buy but with a lower fair value ofRM2.50.

Within expectations.Supermax's FY11 results were within consensus and our expectations, making up95% and 100% of FY11 forecasts. Its 4QFY11 revenue of RM276.2m was quiteflattish q-o-q as the higher sales volume was offset by the lower selling priceof glove since latex price was lower in 4QFY11 versus 3QFY11 at RM7.25/kg versusRM8.67/kg. However, the 4QFY11 net profit of RM28.2m was 8.9% lower q-o-q dueto the 70% cost pass following the continuous stiff competition as well aslower contribution from its associates. Finally, on a YTD comparison, its FY11revenue of RM1,026.9m was higher by 5.1% due to the higher selling price as aresult of higher latex price in FY11 versus FY10 at RM8.95 versus RM7.47 andhigher sales volume of gloves sold as a result of bigger capacity.Nevertheless, its FY11 net profit of RM106.0m was again lower by 33.2% dueto  margin erosion from strongcompetition, lower associates contribution and investment bond written off.

Downgrading FY12earnings by 9%.  Earlier, we hadexpected the latex price to stay within the RM7.00/kg range but unfortunately,the price has shot past this level due to the news of  hard rubber floor price support by the Thai Government at RM11.84/kg (latex expectedto be about RM7.10/kg with the assumption of having 60% hard rubber content andthe balance 40% water). Latex price also rose driven somewhat by the rise in oilprice due to tensions in Iran, causing its direct substitute, nitrile latex, toalso  be on  a rising trend since it is aby-product of oil. Hence, we think this would negatively impact demand growthgoing forward and may eventually lead to some price war to move out rubberglove inventories.

Maintain Buy. Ourfair value for Supermax has been downgraded to RM2.50 (previously RM2.75) basedon existing PER of 13x FY12 EPS. We continue to like the company for its attractivevaluation as well as operating in a recession proof industry. Also, Supermaxhas declared an interim dividend of 1.8sen.

Source: OSK188