INVESTMENT HIGHLIGHTS

• 9MFY19 earnings grew by +14.9%yoy to RM108.7m, due to higher sales volume from the newly commissioned lines

• Lower quantum of compression in profit margin as compare to most peers

• Annual production capacity to increase by 35.0% to 29.4b pieces per annum by the end of 2020

• Maintain BUY with a revised TP of RM1.74 per share

9MFY19 earnings rose by +14.9%yoy to RM108.7m. Supermax’s 3QFY19 earnings came in at RM34.6m. This brings its cumulative 9MFY19 earnings to RM108.7m (+11.8%yoy) which lagged our but exceed consensus’ expectation, accounting for 68.0% and 82.0% of our and consensus’ full year FY19 earnings estimates respectively. The group’s earnings was supported by the increase in annual production capacity. However, overall earnings was partly dragged particularly in the 3QFY19 partly from the upward revision of gas tariff and minimum wage from January 2019 onwards.

Earnings were supported higher sales volume. The 9MFY19 earnings rose by +11.8%yoy to RM1,108.7m. This is as a result of: (i) increased output from Plant 10 and Plant 11 in Klang which was fully commenced in the 2HFY18 (added capacity of 5.6b pieces pa) and; (ii) commissioning of replacement lines at Kamunting Raya plant (capacity of 1.35b pieces pa). The higher sales volume mitigated the impact from the: (i) increase in energy cost; (ii) minimum wage and; (iii) stronger Ringgit during the quarter.

Commencement of a new plant in 2019. The first phase of its new 12th plant in Meru, Klang is on schedule for completion in the 3QCY19. This plant will be equipped with new high-speed and highly automated production lines. Coupled with the group’s ongoing project to replace existing lines at older plants, the expansion plan will boost Supermax’s production capacity by +7.6b pieces per annum to 29.4b pieces per annum by the end of CY20. No dividend was declared during the quarter in order to fund this expansion plan.

Impact to earnings. We are adjusting our earnings forecasts downwards for FY19F and FY20F to RM126.0m and RM149.4m respectively as we expect a slight compression in profit margin due to current subdued average selling price.

Source: MIDF Research - 15 May 2019