Supermax’s  9M14  earnings  came  in  below  expectations,  which  we believe was mainly due to lower production capacity and  a challenging operating environment. We revise our earnings forecasts as we believe the  company  may  need  more  time  to  fully  commission  its  production lines. We maintain our NEUTRAL stance on Supermax with a revised TP of MYR2.16 from MYR2.31 (12x FY15F P/E, 7.3% downside).   
 
Below  expectations.  Supermax’s 9M14  net  profit  of  MYR81.2m  (-21% YoY) fell short of expectations, meeting only 63%/65% of our/consensus full-year estimates. This was partly attributed to the output loss at one of its plants in Alor Gajah, Melaka, which faced a production issue in 4Q13. The  problem  was  only  fully  resolved  in  stages  towards  end-2Q14. Besides,  some  capacity  was  temporarily  lost  at  its  other  factories  as Supermax  resumed  its  scheduled  automation  programme.  Also,  we believe the average selling prices (ASPs) have continued to trend down across  the  company’s range of products, in  tandem  with  lower  raw material  prices  coupled  with  price  competition  in  the  market.  Supermax declared  a  2.0  sen  interim  dividend  for  the  quarter  under  review (cumulative 5.0 sen for 9M14).

Earnings  revision.  We  lower  our  key  assumptions  on  Supermax’s utilisation  rate and  ASPs,  which  lead  to  a  17%/23% cut in our  earnings forecasts  for  FY14/FY15  respectively.  We  expect  FY14  earnings  to  be dragged  by  its  1H14  results.  It  takes  time  for  the  company  to  fully commission  its  production  lines,  and  it  continues  to  face  a  challenging operating  environment  with  declining  raw  material  costs  (resulting  in  a downward  revision  in  our  ASP  assumptions),  a  rise  in  other  operating expenses  (other  than  raw  materials),  and  intensified  competition  within the glove industry.  

Maintain  NEUTRAL.  Following  the  downward  revision  in  our  FY14-15 earnings  forecasts,  we  lower  our  TP  to  MYR2.16  (from  MYR2.31), implying a 7.3% downside. Our TP is pegged to a 12x FY15F P/E (rolled over  from  FY14F  P/E),  which  is  the  mean  of  its  historical  trading  band. We understand that management is organising an analyst briefing soon.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Supermax  Corporation  is  an  investment  holding  company  whose  subsidiaries  are  principally  involved  in  the  manufacturing  and distribution of medical and rubber gloves.

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