Supermax  (SUCB)’s robust 2Q13  results  met  our estimates,  buoyed  by increased  automation  at  its  plants,  which  in  turn  boosted  operating efficiency. We understand that SUCB’s two new plants are well on track for  full  commissioning  by  1Q14.  Maintain  BUY,  with  our  FV  tweaked higher to MYR3.01, pegged to an unchanged 12x 2014 P/E.  
 
- Healthy  2Q13  results.  SUCB  recorded  healthy  2Q13  results,  with  its bottomline  improving  18.3%  y-o-y  and  11.6%  q-o-q  to  MYR35.5m.  This was driven by increasing automation at its plants, which in turn boosted its operating efficiency and production capacity.  

- Revising  estimates.  In  view  of  the  strengthening  of  the  USD  against MYR,  we  are  revising  higher  our  currency  exchange  assumptions  to MYR3.20  (from  MYR3.10)  for  both  2013  and  2014,  while  incorporating higher  logistics  costs  arising  from  the  recent  hike  in  petrol  prices. Correspondingly,  we  raise  our  net  profit  forecasts  by  4.8%  to MYR144.6m for 2013 and by 6.2% to MYR166.6m for 2014.  

- Capacity  expansion  full  steam  ahead.  Our  channel  checks  indicate that SUCB’s two new plants are well on track for  full  commissioning  by 1Q14.  Both  plants  will  produce  3.2bn  and  2.2bn  pieces  of  nitrile  gloves individually. Upon full completion,  all three plants – including Lot 6070 -  will  more  than  double  the company’s annual  nitrile  capacity  to  12.3bn pieces  versus  5.9bn currently.  This  will  also increase  its  production mix to 53% nitrile gloves. Nitrile gloves usually command higher margins and 
are less vulnerable to the fluctuations in raw material prices.

- Maintain  BUY.  All  in, we remain positive on SUCB’s growth prospects, backed  by:  i)  favourable  raw  material  prices,  ii)  rising  production capacity, and iii) increasing automation at its plants, which in turn boosts its operating efficiency. Maintain BUY on the stock, with our FV nudged higher  to  MYR3.01  (from  MYR2.84),  at  an  unchanged  12x  FY14  P/E. The target P/E is a discount to the average sector multiple of about 16x due to its smaller market share and lower mix of nitrile products.

Source: RHB