KEY INVESTMENT HIGHLIGHTS

• Proposes one-for-one bonus issue

• Bonus issue to improve trading liquidity

• Bonus issue to enhance affordability of shares

• Earnings forecast maintained

• Maintain Neutral with a revised TP of RM16.80

Proposes one-for-one bonus issue. Supermax announced that the company proposes to undertake a bonus issue of up to 1,360,309,760 new Supermax shares on the basis of one bonus share for every one existing Supermax share. The entitlement date will be determined and announced later. The bonus issue is expected to be completed by 3QCY20.

Bonus issue to improve trading liquidity. The bonus issue of shares is positive to shareholders as it would enable the existing shareholders of Supermax to have greater participation in the equity of Supermax in terms of number of shares held. Besides, the bonus issue would improve trading liquidity of Supermax shares as enlarged issued share capital is expected to double to 2.72bil shares after the completion of bonus issue.

Enhance affordability of shares. The bonus issue will reduce stock price of Supermax and increase attractiveness of Supermax shares. We estimate theoretical ex-bonus issue price, assuming yesterday’s closing price, to be at RM8.73. Hence, we expect the bonus issue to enhance affordability of Supermax shares to retail investors.

Earnings forecast maintained. We make no changes to our earnings forecast for FY20/21F as the bonus issue is not expected to have effect on earnings of Supermax. Earnings outlook for Supermax is positive, underpinning by higher average selling price (ASP) of gloves amid Covid-19 pandemic.

Maintain Neutral with a revised TP of RM16.80. We revise our TP for Supermax to RM16.80 from RM11.20 as we roll over our valuation to FY22. We peg FY22F EPS at a higher PER of 48x (previously 38x) due to better liquidity of Supermax shares. We value Supermax close to its +2SD 3-year mean due to the positive outlook for ASP of gloves. Nevertheless, we maintain our NEUTRAL call on Supermax due to its rich valuation.

Source: MIDF Research - 21 Jul 2020