Supermax  (SUCB)’s  1HFY13  core  earnings  of  MYR67.8m  were  within expectations,  at  49.0%  and  49.6%  of  our  and  consensus  full-year estimates  respectively.  We  attribute  the  decent  numbers  to  the  easing of raw material prices as well as the increased automation in its plants that helped boost its bottomline. Maintain BUY, with our FV of MYR2.84 based on an unchanged 12x FY14 P/E.  
 
- Decent  numbers.  SUCB’s  1HFY13  core  earnings  came  in  at MYR67.8m, which were within our and consensus expectations, making up  49.0%  and  49.6%  of  FY13  forecasts  respectively.  On  a  YTD  basis, the  company  recorded  revenue  of  MYR650.5m,  which  ticked  up  35.4% y-o-y  mainly  due  to  the  increase  in  its  production  capacity  as  well  as improved  operating  efficiencies  in  its  factories.  Sequentially,  2QFY13 revenue  improved  42.2%  y-o-y  and  2.9%  q-o-q  owing  to  the  easing  of lower  material costs.  Meanwhile, improved  automation  in its  plants  also increased  production  efficiency,  which  helped  boost  its  2QFY13 bottomline to MYR35.5m (+15.5% y-o-y; +11.6% q-o-q)

- Latex prices to remain soft. The average latex price dipped 7% q-o-q (1QCY13  latex  price  was  MYR6.14/kg  vs.  MYR5.72/kg  in  2QCY12) which resulted in the improvement of its PBT and PAT margins by 60bps and 90bps q-o-q respectively.  Moving forward,  we are  anticipating latex prices to remain soft at current levels (ie MYR5.30/kg) on the grounds of weak auto global sales as well as increase in supply from Thailand and Cambodia.

- Capacity expansion. Upon the full commissioning of its two new plants -  Lot  6058  and  6059  -  by  1QFY14,  SUCB’s total nitrile capacity  would more  than  double  to  12.3bn  pieces  p.a.  (from  5.4bn  pieces  currently). Nitrile  gloves  usually  command  a  higher  margin  and  are  less  prone  to raw material price fluctuations.

- Maintain  BUY.  All  in  all,  we  remain  positive  on  SUCB’s  growth prospects backed by: i) favourable raw material prices, ii) the increase in its  production  capacity,  and  iii)  increasing  automation  in  its  plants  to boost  operational  efficiency.  Thus  we  maintain  BUY  with  our  FV  of MYR2.84 at an unchanged 12x FY14 P/E.   

Source: RHB