Period

4Q16/12M16

Actual vs. Expectations

12M16 net profit of RM127m (+26% yoy) came in within expectations at c.73% of our full-year 18-month forecasts (note the change in financial year-end from Dec to June, as such results would be 18-month to FY Jun 16).

Dividends

A second interim single-tier DPS of 2.0 sen was declared in this quarter. This brings 12M16 DPS to 4.0 sen. Key Result

Highlights

QoQ, 4Q16 revenue fell by 6% due to lower ASPs of between 5% and 15% across its range of products amid an increasingly competitive market for rubber gloves and mitigated by the strengthening of USD against MYR, averaging an estimated 6%. This brings 4Q15 PAT to RM38.8m (+1.5% QoQ) due to lower effective tax rate.

YoY, 12M16 revenue and net profit rose 5% and 26%, respectively; achieved on the back of a stronger USD which appreciated by 27%, coupled with increased capacity output from new and refurbished production lines as well as a better sales mix with stronger nitrile glove sales that command higher margin.

Outlook

Growth going forward is expected to be driven by two new plants, namely Plant #10 and Plant #11 i.e. Lot 6059 and 6058 in Meru, Klang. These two plants are expected to ramp up capacity by 32% to 23.2b pieces by 3QCY16, catering entirely to producing nitrile gloves, and have started commissioning and are presently running 8 double former lines equivalent to 2.2b pieces (installed capacity rose 12% to 19.8b pieces as at 31 Dec 2015). The remaining balance 3.4b pieces capacity is expected to be commercially ready based on the following; (i) 4 double former lines (1.1b pieces) expected Feb-Mar 2016, (ii) 4 double former lines (1.1b pieces) expected April 2016, and (iii) 4 double former lines (1.1b pieces) expected by May 2016.

Change to Forecasts

No changes to our FY16E and FY17E earnings.

Rating & Valuation

Maintain Outperform and TP of RM3.80 based on 17x FY17 EPS (at +2.0 SD above its historical forward average). We like Supermax for: (i) volume growth from gradual ramp up of new plants to provide earnings growth over the next two years, (ii) steep 40% discount to the sector average compared to previously 30%, and (iii) it is not just purely a rubber gloves play, but it may potentially see recurring earnings stream from its venture into the contact lens manufacturing.

Risks to Our Call

Slower-than-expected commissioning of new plants.

Source: Kenanga Research - 29 Feb 2016