We  remain  cautious  on  Supermax’s  prospects  as  we  do  not  yet  see evidence  of  clearly  defined  catalysts.  Therefore  we  maintain  our NEUTRAL  recommendation  with  a  revised  TP  of  MYR2.19  (11x  FY16F P/E,  2%  downside)  from  MYR2.16  previously.  Prefer  Hartalega  and Kossan instead.

Delayed capacity increase. Lot 6058 and Lot 6059 were expected to be commissioned in Q4 2014, which would  have  increased  the company’s nitrile glove capacity to 12.3bn  pieces from 5.9bn  pieces currently.  We were unable to  confirm this increase  with  management.  Further we note that  the  commissioning  of  both  these  lots  has  been  delayed  since  1Q FY14.

Macro-economic themes.  In the recently  revised 2015 Budget,  it wasannounced the postponement of scheduled gas and electricity tariff hikes for FY15. We included this news into our forecast as combined  gas and electricity make up roughly 10-15% of Supermax’s costs.  We have also revised our USDMYR  exchange rate  assumption for FY15 to  MYR3.50 from  MYR3.30.  As such,  overall we revise upwards our FY15F earnings by  2.2%  to  MYR123.6m  and  also  revised  our  FY16F  earnings  to MYR135.4m (from MYR130m).

Risk.  Heightened  industry  competition  could  lower  ASP  and  marginswhich  would  not  bode  well  for  Supermax  as  the  company  is  a  margin laggard relative to industry peers.

Maintain  NEUTRAL.  We  maintain  our  NEUTRAL  with a revised  TP of MYR2.19  (11x  FY16F  P/E,  2%  downside)  from  MYR2.16  previously.This  is  pegged  to  its  3-year  mean  of  its  historical  trading  band.  We believe this is justified due to the poor execution track  record.  Supermaxis also less skewed in the more lucrative nitrile glov e segment relative to its  peers  with  only  35-40%  of  total  capacity  vs  Hartalega’s  90%  and Kossan’s  60%.  The market could  regain some  confidence  in  the  stock should Supermax deliver on the execution of Glove City and Supermax Business Park.  Investors will need evidence of  clearly defined  catalystsfor the stock to move higher.  

Awaiting New Catalysts
Macro-economic themes
Prices of raw materials, nitrile and latex remain subdued. The weaker demand and stronger  supply  situation  in  the  rubber  market  is  expected to  persist,  thus  keeping prices  of  natural  latex  low.  The  current  weakness  in  prices  of  oil,  which  nitrile  is derived from, is expected to keep prices of the nitrile favourable as well.

The  stronger  USD  relative  to  MYR  is  a  boon  to  Supermax  as  revenue  will  be proportionally  more  sensitive  to  the  USD  relative  to  cost.  >90%  of  revenue  is denominated  in  USD  while  ~30%  of  cost  is  denominated  in  MYR.  The  USD  has strengthened by 7.3% against the MYR since Dec 14.

Source: RHB