INVESTMENT HIGHLIGHTS

• 1HFY19 earnings grew strongly by +16.1%yoy to RM74.1m, in-line with our expectation

• Stronger earnings is attributable to increased output from the newly commissioned lines and lower tax expenses

• Commencement of a new plant in the 2HFY19 will continue to support earnings growth

• Maintain BUY with an unchanged TP of RM1.79 per share

Met expectations. Supermax’s 2QFY19 earnings came in at RM38.1m. This brings its cumulative 1HFY19 earnings to RM74.1m (+16.1%yoy) which met our and exceed consensus’ expectation, accounting for 46.1% and 56.8% of our and consensus’ full year FY19 earnings estimates respectively.

1HFY19 earnings. The 1HFY19 revenue rose by +16.1%yoy to RM752.2m. This is as a result of: (i) increased output from newly commissioned production lines i.e. Plant 10 and Plant 11 in Klang and; (ii) commissioning of replacement lines at its Perak plant. Meanwhile, the strong growth in the 1HFY19 earnings of +16.1yoy to RM74.1m is also supported by lower tax expenses which result in effective tax rate to decline to 30.2% from 33.5% in the previous corresponding quarter.

Commencement of additional plant in FY19. The construction works to build the 12th plant in Meru, Klang was started in June 2018. This plant is expected to be completed in the 3QFY19. We expect that the commencement of this plant in FY19 will contribute to stronger earnings.

First interim dividend declared for FY19. The group has declared its first interim dividend of 1.5sen per ordinary share for FY19 (vs 3.0sen per ordinary share in 2QFY18).

Impact to earnings. We are maintaining our earnings forecasts for FY19F as we have imputed the contribution from the new replacement lines as well as the commencement of a new additional plant in FY19. Key risks to our earnings estimates would be: (i) sudden surge in raw materials price; and; (ii) production line breakdowns.

Source: MIDF Research - 13 Feb 2019