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Wednesday, February 13, 2019

CIMB Research retains Add for Supermax, TP TM2.23

Wednesday, 13 Feb 20198:55 AM MYT

KUALA LUMPUR: CIMB Equities Research is keeping its Add call for Supermax Corporation Bhd
and target price of RM2.23 as the glove maker’s risk-reward profile remains appealing.

The research house said on Wednesday Supermax’s current valuation of 14.9 times CY19F P/E is below its five-year mean (15.2 times) and 41% discount to the sector’s weighted average (26.2 times).

“Stronger earnings from its glove division and lower-than-expected losses from its contact lens unit are potential re-rating catalysts,” it said.

CIMB Research said Supermax’s revenue for the second quarter ended Dec 31, 2018 rose 4.9% on-quarter, on the back of higher glove sales, as the group added new capacity (1.4 billion pieces) after upgrading its Block G plant in October 2018.

The 2QFY19 EBITDA margin rose 0.1% pt on-quarter to 18.1%, due to increased operating efficiencies and stronger US$/ringgit.

The 2QFY19 core net profit rose a stronger 23% on-quarter to RM38.1mil, aided by lower tax rate of 28.7% (-3.0% pts on-quarter).

As for the first half, revenue rose 16.1% on-year; core net profit grew 9.3% on-year to RM69.7mil.

“The stronger performance was mainly due to: i) higher sales volume with more new capacity being commissioned, and ii) better economies of scale.

“1HFY19 core net profit accounted for 54% of our and 53% of Bloomberg consensus full-year estimates, deemed within expectations as 4Q is seasonally the weakest quarter for the group,” it said.

Supermax targets to grow its total glove production capacity by 25.6% to 28.1 billion pieces by end-2019.

CIMB Research said over the next two years, it expects Supermax’s contact lens division to remain loss-making, with a small net loss of RM1mil to RM5mil per annum, despite being profitable on the gross profit level.

“We expect the segment’s advertisement and promotional costs to remain high in the near term, given the group’s plans to grow its contact lens sales more aggressively, especially in key markets such as China and Southeast Asia.

“It also aims to grow sales of its own brand, Aveo, to 40% of its total contact lens sales (from less than 5% in FY18),” CIMB Research said.


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