News

In an announcement to Bursa Malaysia, its wholly-owned Supermax Healthcare Limited has been awarded one of the licenses to supply medical gloves to the National Health Service (NHS) over the next four years and contribution is expected starting from FY June 2017. The NHS covers all hospitals in the United Kingdom, consuming approximately GBP50m (equivalent to RM330m) of medical gloves annually. With this license, Supermax will be in a position to capture a share of the lucrative NHS business.

Comments

This news came as a pleasant surprise to us as well as the market. For illustrative purposes, assuming a net margin of 11%, 30% market share of the RM330m medical gloves consume annually will contribute RM11m or 9% to our FY17 net profit forecast.

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 has been commissioned. 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. Both plants are targeted to be fully commission by 1Q 2016.

Change to Forecasts

We are upgrading our FY17 net profit by 9%, assuming 30% portion of the contract and net margin of 11%.

Rating & Valuation

Correspondingly we upgrade our TP from RM2.38 to RM2.60 based on FY17E EPS. We roll forward our valuation from FY16E to FY17E. The share price has appreciated 46% YTD. Coupled with constantly missing earnings expectation as well as slower-thanexpected ramp up at the new plant, we expect its earnings to be pedestrian in subsequent quarters. As such we maintain our Market Perform rating.

Risks

Slower-than-expected commissioning of new plants.

Source: Kenanga Research - 13 Nov 2015