Period  2Q14/1H14

Actual vs. Expectations The 1H14 net profit of RM53.4m (-21.4% yoy) came in below expectations at 38-39% of our full-year foreast and the consensus forecasts. The negative variance from our forecast was due to lower-thanexpected sales volume.

Dividends  No dividend was declared in this quarter.

Key Result Highlights QoQ, 2Q14 revenue rose by 2.5% to RM238m due to higher gloves volume sales (+8.8%) and a lower average selling price as production lines gradually re-commenced operations, which was earlier halted due to a fire as the lines were restored in stages towards end-2Q14. However, some capacity was temporarily lost due to the resumption of scheduled automation programme leading to shutdown of some production lines. The loss in output due to continuation of the automation process will be more than compensated by new output from the Meru plant scheduled for commissioning by 4Q14 onwards. Looking ahead, we are not overly concerned about earnings growth going forward because: (i) 50% of the production lines impacted by the fire are now up and running since mid-Jan 2014 while the remaining production lines were recommissioned in various stages in 2Q14 and (ii)potential insurance claims from the damages and loss of revenue could be reflected in subsequent quarters.

 YoY, 1H14 revenue fell by 27%; hit by both lower sales volume of nitrile gloves due to a fire incident at its Alor Gajah, Malacca plant leading to a loss in production output. This brings 1H14 PATAMI to RM53.4m (-21%).

Outlook  Growth going forward is expected to be driven by two new plants, namely Lot 6059 and Lot 6058. We understand that the building structures for Plant #10 and Plant #11 i.e Lot 6059 and 6058 in Meru, Klang are up and the first batch of lines were commissioned in August 2014. Lot 6059 and 6058 will have 24 and 16 production lines producing 3.2b and 2.2b pieces of nitrile gloves p.a., respectively, bringing the total nitrile production capacity from 6.9b (including the 1.4bn in Lot 6070) to 12.3b pieces p.a. or 52% of the total installed capacity.

Change to Forecasts We are downgrading our FY14E net profit by 9% due to loss in output arising from the resumption of the automation programme leading to shutdown of some production lines. We are keeping our FY15 numbers, underpinned by growth from new plant.

Rating & Valuation Maintain Outperform and TP of RM3.23 based on unchanged 14x FY15 EPS. We continue to like SUPERMX for its 35% valuation discount to peers and impending commercial operation of its plant in Meru to be a re-rating catalyst.

Reiterate OUTPERFORM.

Risks to Our Call  Slower-than-expected commissioning of new plants.

Source: Kenanga