Journey to Wealth
Supermax - Mulling over South America facilities HOLD
- Supermax Corp Bhd's (Supermax) executive chairman and group managing director, Datuk Seri Stanley Thai, was quoted in a local daily today saying the company is looking for a suitable location in South America to set up production facilities.
- This comes after governments in the region imposed a 35% duty on imported natural rubber examination gloves. At present, it commands 70% of the Brazilian glove market together with Top Glove Corp (BUY, FV: RM6.50/share).
- We understand that Supermax's initial investment entails the building of a factory with an expected installed annual capacity of 2.4bil pieces from at least 20 production lines (~120mil pieces per line per annum). In comparison, its current capacity of 17.8bil pieces per annum from 157 lines translates to 113mil pieces per annum.
- We note that this development is not new and that Supermax has already announced its intention to penetrate new markets in Latin America, including Mercosul Free Trade Agreement countries (Argentina, Brazil, Paraguay and Uruguay) and Andean Community of Nations countries (Bolivia, Columbia, Ecuador and Peru), through various strategies, including the setting up of manufacturing plants there.
- We believe this expansion is positive for Supermax as it is in-line with the company's strategy of focusing on its downstream activities and protection of its market share in the region.
- However, we remain cautious as no time. line was given. With Supermax yet to find a suitable location/country and factory construction time, we gather that any contribution to earnings will probably be sometime in FY15/16, at the earliest.
- In the meantime, Supermax will be kept busy with its current capacity expansion at Lot 6058 and Lot 6059 (both for nitrile gloves), Glove City (Phase 1, FY14F) and expansion of its National Distribution Headquarters in the US.
- Maintain our HOLD recommendation on Supermax with a fair value of RM2.20/share for now, pending concrete details.
Source: AmeSecurities
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