Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD
Research House: CIMB
Supermax Corporation Bhd
(Feb 11, RM4.26)
Maintain buy at RM4.36 with target price of RM8.22: We believe Supermax may report an 8% to 21% quarter-on-quarter (q-o-q) decline in 4QFY10 net profit to RM30 million to RM35 million when it releases its results sometime next week. This implies a FY10 net profit of RM165 million to RM170 million or a shortfall of 8% to 10% against our forecast of RM183.8 million and 5% to 7% against consensus. We maintain our numbers but flag the likelihood of a 10% to 15% downgrade of FY11/12 net profit to RM180 million to RM200 million. Despite the potential earnings letdown, we remain positive about Supermax's long-term earnings outlook and will not change our recommendation when the results are released. For now, we retain our target price of RM8.22, based on an unchanged CY12 PER of 11.6 times, or a 20% discount to Top Glove's target PER of 14.5 times. The stock remains an 'outperform'. Potential re-rating catalysts include: (i) an earnings recovery for its associates; and (ii) the restart of its Sungai Buloh plant.
We believe the primary reason for the sequential decline in earnings is due to intense competition in the nitrile market and a delay in passing on higher raw material costs.
We remain positive on Supermax's earnings growth prospects for FY11/12. Over the next two fiscal years, we expect Supermax to shave five percentage points off its tax rate to 10% as the company benefits from its regional distribution status. Also, we expect its Sungai Buloh plant to be fully operational by FY12, adding circa 350 million pairs of surgical gloves to capacity.
Supermax is trading at a CY12 PER of just 6.2 times or 50% below the market's forward PER of 12.7 times. In our view, these valuations are
undemanding given Supermax's three-year earnings per share compound annual growth rate of 22.5%, which is well supported by long-term structural trends such as: (i) the modernisation of the healthcare sector in China and India; (ii) increasing hygiene awareness; and (iii) increased medical coverage due to the US healthcare reform bill. ' CIMB Research, Feb 11
This article appeared in The Edge Financial Daily, February 14, 2011.
Company Name: SUPERMAX CORPORATION BHD
Research House: CIMB
Supermax Corporation Bhd
(Feb 11, RM4.26)
Maintain buy at RM4.36 with target price of RM8.22: We believe Supermax may report an 8% to 21% quarter-on-quarter (q-o-q) decline in 4QFY10 net profit to RM30 million to RM35 million when it releases its results sometime next week. This implies a FY10 net profit of RM165 million to RM170 million or a shortfall of 8% to 10% against our forecast of RM183.8 million and 5% to 7% against consensus. We maintain our numbers but flag the likelihood of a 10% to 15% downgrade of FY11/12 net profit to RM180 million to RM200 million. Despite the potential earnings letdown, we remain positive about Supermax's long-term earnings outlook and will not change our recommendation when the results are released. For now, we retain our target price of RM8.22, based on an unchanged CY12 PER of 11.6 times, or a 20% discount to Top Glove's target PER of 14.5 times. The stock remains an 'outperform'. Potential re-rating catalysts include: (i) an earnings recovery for its associates; and (ii) the restart of its Sungai Buloh plant.
We believe the primary reason for the sequential decline in earnings is due to intense competition in the nitrile market and a delay in passing on higher raw material costs.
We remain positive on Supermax's earnings growth prospects for FY11/12. Over the next two fiscal years, we expect Supermax to shave five percentage points off its tax rate to 10% as the company benefits from its regional distribution status. Also, we expect its Sungai Buloh plant to be fully operational by FY12, adding circa 350 million pairs of surgical gloves to capacity.
Supermax is trading at a CY12 PER of just 6.2 times or 50% below the market's forward PER of 12.7 times. In our view, these valuations are
undemanding given Supermax's three-year earnings per share compound annual growth rate of 22.5%, which is well supported by long-term structural trends such as: (i) the modernisation of the healthcare sector in China and India; (ii) increasing hygiene awareness; and (iii) increased medical coverage due to the US healthcare reform bill. ' CIMB Research, Feb 11
This article appeared in The Edge Financial Daily, February 14, 2011.
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