CIMB sees super 3Q results from Supermax

Written by Financial Daily
Wednesday, 14 October 2009 10:56

CIMB Research expects glovemaker Supermax Bhd to post tomorrow “a strong set of results” for the third quarter ended Sept 30, foreseeing the latter’s annualised earnings to outstrip its full-year forecast of RM92.5 million “by around 15%” on higher revenue and margins.

“Judging from the strong 4Q results announced by Top Glove Bhd 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,” CIMB said in a note yesterday in maintaining its buy call at RM2.91.

The research house retained its FY09-11 earnings forecast, but went on to say that it is “likely to raise” them by about 24% to 29% after the earnings release.

“The strong demand trend witnessed since the A(H1N1) outbreak has pushed up Supermax’s sales. We gathered that deliveries are booked up to February next year. With about 55% of its products coming from the OBM (original brand manufacturing) segment, the robust demand could be a chance for the company to wangle higher prices for its products, which would enhance margins,” it said.

CIMB’s target price for Supermax was raised to RM4.28 from RM4.02, as the research house rolled forward its valuations to FY10 numbers. The new price target is still pegged to an unchanged 10.5 times earnings, unchanged to Top Glove’s target earnings multiples, which is in turn, based on its target market multiple of 15 times.

CIMB listed the anticipated 3Q results outperformance, continued uptick in glove demand an its upcoming capacity expansion plans as potential re-rating catalysts for Supermax.

Supermax’ 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 January 2010. The company also intends to refurbish some old lines and add some new ones at its Melaka 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, CIMB said.

“Supermax is also firm on its plan to build a glove city on a 36.8-acre plot in Bukit Kapar, Klang, and the latter is looking at starting CONSTRUCTION [] of the first plant with an annual capacity of three billion pieces of gloves in 2011,” it added.

CIMB said it was also looking out for a potential dividend announcement by Supermax, given that the latter “typically announces an interim dividend in its 3Q results release”.

“Considering the strong demand trend, potential improvement in earnings and higher margins, we look forward to the announcement of a higher interim dividend for 3Q09,” said CIMB, which is forecasting a seven sen gross dividend per share for 2009, up from 3.2 sen last year.

Supermax surged 29 sen to close at RM3.20 yesterday.


This article appeared in The Edge Financial Daily, October 14, 2009.