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Thursday, March 19, 2020

RHB maintains 'buy' on Supermax, TP at RM1.86

ANALYST REPORTS
Monday, 16 Mar 20208:49 AM MYT

KUALA LUMPUR: While Supermax Bhd is expected to benefit from a demand surge in gloves owing to the Covid-19 pandemic, RHB research is positive over the company's plans for the future expansion of its manufacturing capacity.

The glove maker recently announced that it had acquired a tract of land in Kapar, Klang, for RM20mil, which a news report says it plans to use to increase its production by 4.5 billion ppa over the next five years.

"The land location is strategic, being nearby its existing cluster of manufacturing plants and hence, it should lead to better operational synergies and efficiency," said RHB in a note.

However, the research house has kept its FY20-22 forecasts on the company pending the detailed plan for expansion by Supermax's management.

With regards to recent expansion, RHB said the commissioning of new lines at Block A of Plan 12 in Meru, Klang, is ongoing.

"We expect Supermax capacity to increase by 0.8bn ppa (or 3%) after completing the remaining three lines at Block A in March-2020," it said.

The research house also estimates that due to the worse-than-expected spread of Covid-19, the orders for gloves from China and other countries in the region have increased, with Supermax's utilisation rate surging to more than 85% versus the usual 70% to 75%.

The company will also benefit from a weaker ringgit as nearly all of its gloves are exported with a 50% to 60% cost in US dollar.

RHB expects ever 0.10% increase in the US dollar-ringgit exchange rate would boost earnings by 1.8%.

The research house maintained its buy call on Supermax with a target price of RM1.86.

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