CIMB maintains Buy on Supermax

Written by Joseph Chin
Tuesday, 13 October 2009 10:52

KUALA LUMPUR: CIMB Equities Research is maintaining a Buy on Supermax at RM2.91 as it expects the glove maker to announce a strong set of its third quarter (3Q09) results on Thursday, Oct 15.

It said on Tuesday, Oct 13 that judging from the strong 4Q results announced by Top Glove recently, Supermax is likely to post a strong set of results too.

"We expect its 3Q earnings to be much higher on both quarter-on-quarter and year-on-year basis. Annualised 9M09 earnings are likely to outstrip our full-year forecast of RM92.5 million by around 15%, thanks to outperformance of both the topline and margins," it said.

CIMB Research said for now, it is retaining its FY09-11 earnings forecasts which it is likely to raise by about 24%-29% after the release of the results.

"However, as we are now in the final quarter of 2009, we roll forward our target price to end-10. This lifts our target price from RM4.02 to RM4.28, still pegged to 10.5 times price-to-earnings (P/E), an unchanged 30% discount to Top Glove’s target P/E, which is, in turn, based on our target market
P/E of 15 times.

The research house said potential re-rating catalysts for Supermax include the anticipated 3Q results outperformance, continuing uptick in glove demand and upcoming capacity expansion plans. Supermax remains a BUY.

It also said Supermax typically announces an interim dividend in its 3Q results release. Considering the strong demand trend, potential
improvement in earnings and higher margins, it was looking forward to the announcement of a higher interim dividend for 3Q09.

Supermax’s annual glove production capacity currently stands at 14.5 billion pieces per annum. Its expansion plans include adding 12 new lines at its Meru plant by Jan 2010.

The company also intends to refurbish some old lines and add some new ones at its Malacca and Sungai Buloh plants, taking its annual glove production capacity to 17.7 billion pieces by mid-2010.

"The company is optimistic that the strong demand trend witnessed since the outbreak of A(H1N1) at end-April will continue in 2010," it added.