Period  3Q14/9M14

Actual vs. Expectations The 9M14 net profit of RM81.2m (-21.7% yoy) came in below expectations at 63%/65% of our/consensus full-year forecasts. The negative variance from our forecast was due to lower-than expected sales volume and lower-than-expected margin.

Dividends  An interim 2 sen tax exempt dividend was declared.

Key Result Highlights QoQ, 3Q14 revenue rose by 16% to RM278m due to higher gloves volume sales as production lines had since fully recovered from the fire that broke out at its Alor Gajah plant. However, some capacity was temporarily lost due to the resumption of scheduled automation programme leading to shutdown of some production lines, but the loss would be more than compensated by new output from the Meru plant scheduled for commissioning from 4Q14 onwards in FY15. EBITDA margin fell 2.3%pts to 14.2% in 3Q14 due to RM 5.9m forex losses incurred during the current quarter and stocking-up costs relating to new factories and resumption of full operations in the Alor Gajah plant.  Potential insurance claims from the damages and loss of revenue could be reflected in subsequent quarters.

 YoY, 9M14 revenue fell by 19%; hit by 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 9M14 PATAMI to RM81m (-21%).

Outlook  Growth going forward is expected to be driven by two new plants and 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 are expected to be commissioned end Dec 2014 (one line has started production). 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 and FY15E net profits estimates by 6% and 10%, respectively, due to loss in output arising from the resumption of the automation programme leading to shutdown of some production lines and lowerthan- expected margin.

Rating & Valuation Correspondingly our TP is reduced by 6% from RM3.23 to RM3.06 based on unchanged 14x FY15E revised EPS. We like Supermax for: (i) rerating catalyst upon commercial production of its new plant expected by end Dec (one line has started production) which dispelled market skepticism of persistent delays in the new plant, (ii) steep 40% discount to the sector average, and (iii) being a beneficiary of the strengthening USD against RM. Reiterate OUTPERFORM.

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

Source: Kenanga