CIMB ups Supermax target price to RM6.40

Written by Financial Daily
Thursday, 22 October 2009 10:51

CIMB Research has reaffirmed its buy call on glove manufacturer Supermax Corp Bhd at RM3.60 and upgraded its target price for the stock to RM6.40 from RM6.31 on the back of improving prospects for the sector as a result of the H1N1 outbreak.

“The company is also optimistic that the strong demand trend witnessed since the outbreak of H1N1 will spill over to 2010. We believe that earnings in the final quarter of 2009 could be even better than the third quarter as its products are booked up to December and the company is already selling its capacity for January and February next year,” said CIMB.

According to CIMB, global rubber glove demand has registered consistent growth of about 8% to 10% per annum for the past few years. Estimates from Supermax indicated that consumption for this year could reach about 148 billion pieces, an 18% increase over 2008.

“Furthermore, Supermax believes that the shortage or tight supply of gloves will continue in 2010. The company said demand has been so great that it does not have enough capacity to handle all of its customers’ orders. Orders received year-to-date totalled 17.5 billion pieces versus total installed annual capacity of 14.5 billion. The company estimates that it can only produce and ship 12.4 billion pieces this year, which means a backlog of about 5.1 billion pieces which will only be shipped next year,” said CIMB.

As a result of strong growth prospects, CIMB raised its FY09 to FY11 earnings forecast for Supermax by between 1% and 4% at RM132 million, RM140.8 million and RM161.7 million for FY09, FY10 and FY11 respectively.

“We are also upping our FY09 to FY11 dividend per share (DPS) from 9-12 sen to 9.5-12.5 sen,” said CIMB.




The research house also noted that ever since its APL INDUSTRIES BHD [] investment blunder, Supermax has been careful about expanding, which resulted in a stagnation of its production capacity for two years that left it unprepared for the strong demand following the outbreak.

“Now, in response to the changing environment and strong global demand, management has decided to bring forward some of next year’s capital expenditure plans to November.

Instead of starting in January 2010, it will start putting in 12 new production lines at its Meru plant in Klang next month. It also plans to decommission four old lines and replace them with six new production lines in that same plant by 3QCY10,” said CIMB.

In addition, Supermax is seeing strong contributions from its associates driven by the company’s ongoing efforts to develop its 50%-owned distribution business in Brazil, Canada and Belgium as well as its 33%-owned distribution centre in Australia.

CIMB also noted that Supermax’s market share in the US dental market continues to grow.

“As reported in Strategic Dental Marketing, Supermax’s share of the dental market increased from 7.1% in 1Q09 to 7.6% in 2Q09, making it the second biggest glove brand in the US dental market. This is a feather in its cap as the company has been slowly building its reputation over the past nine years and now has a strong footing in the US dental glove industry,” said CIMB.

Supermax surged 25 sen to close at RM3.85 yesterday.


This article appeared in The Edge Financial Daily, October 22, 2009.