• In a filing to Bursa Malaysia yesterday, Supermax Corp said that its wholly-owned subsidiary, Supermax Healthcare Limited, has been awarded one of the licenses to supply medical gloves to the United Kingdom’s National Health Service (NHS).
• The NHS is the publicly-funded healthcare system for England. It provides free healthcare at the point of use to every legal UK resident. Its services are provided through trusts and private sector companies.
• We understand that the award is in line with the NHS’ target to save GBP22bil by 2020. The NHS believes that substantial efficiency savings could be achieved by regulating the procurement of gloves given that it comprises a significant percentage of clinical consumable spend and that it is an easily standardised product.
• Supermax’s award does not come as a total surprise as the The Telegraph had earlier reported that the group was shortlisted for NHS’ previous contract with two others back in 2011. Previous companies on the core list to buy from source included Fannin, Kimberly Clark, Medicare Medline, PH Medisavers, Schottlander, Semperit and Shermond.
• Similar to the previous NHS contract, Supermax’s current license will be valid for four years. As the previous contract ran from 1 Oct 2011 to 30 Sept 2015, we believe this latest award would be for the period beginning 1 Oct 2015 to 30 Sept 2019.
• According to the Bursa announcement, the NHS consumes about GBP50mil worth of gloves annually. While this, alongside the constant and sizeable order for gloves, makes it an attractive customer, we note that margins may be thinner as Supermax may have to give commitment and prompt settlement discounts.
• We are leaving our FY16F-FY18F earnings unchanged at this juncture given the lack of details to quantify the potential earnings upside. Any positive contributions to Supermax’s earnings will also only arrive from FY17F onwards.
• Reaffirm HOLD and place fair value of RM2.05/share under review. The RM weakness this week has again lifted Supermax’s share price and that of its peers above our fair value. We maintain our view that the key re-rating catalyst for the group would be the smooth execution of its expansion plans.

Source: AmeSecurities Research - 13 Nov 2015