• Supermax (SUCB)  announced last Friday that it has  bought  a 100-acre piece of land  on which the company will  build  its new  integrated glove manufacturing facility. We  are positive on the move as this would help expand  SUCB’s  production  as  well  as  earnings  growth  in  the foreseeable  future.  Hence,  maintain  BUY,  with  unchanged  FV  of MYR3.01, based on the existing 12.0x FY14 P/E.
• The  salient  terms.  SUCB  said  its  wholly-owned  subsidiary,  Maxwell Glove  Manufacturing  Bhd  (Maxwell),  has  entered  into  a  sales  and purchase  agreement  with  Dragonline  Resources  SB  to  acquire  a  100-acre piece of freehold land in Daerah Ulu Selangor in Selangor for a total consideration of MYR78.4m.
• Riding on the nitrile demand wave.  SUCB  said  the acquisition is part of the group’s strategy to expand  its  capacity. Some 60% of the land  will be  allocated  to  a  new  integrated  glove  manufacturing  complex  named Supermax  Business  Park  that  will  produce  nitrile  medical  and  dental examination gloves, while the remaining 40% will be offered to the gloverelated  supporting  industries.  We  are  not  surprised  with  SUCB’s  latest move  as  this  is  in line  with  its  plan  to  boost  production  capacity  since glove  demand  remains  resilient  and  healthcare  awareness  is  rising globally.
• Paying by cash and borrowings.  As the proposed acquisition  will only be  completed  by  1Q14,  the  details  are  still  scant  at  this  juncture.  We believe  that  the  capex  to  be  incurred  would  not  significantly  strain SUCB’s  balance  sheet  given  it  had  net  cash  of  MYR146.8m  as  at 2QFY13. We also  understand that the purchase will be funded internally as well as via borrowings.
• Maintain BUY. All in all, we are positive  on  SUCB’s upcoming business park as  the facility will  help  the group  secure its production,  and  in turn,earnings growth. As we expect do not expect any  major surprises in the company’s upcoming 3QFY13 results, we reiterate our BUY call, with an unchanged  FV  of  MYR3.01,  based  on  12.0x  FY14  P/E  (unchanged), which is line with the stock’s 1-year historical average P/E of 12.0x. 

Source: RHB