March 2, 2012

Supermax (SUCB MK, BUY, FV:2.50, CL:RM1.99)

Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD
Research House: OSKPrice Call: BUYTarget Price: 2.50




Supermax held an analyst briefing  yesterday to update investors on its strategygoing forward.  Management  is targeting  to increase  its mix of  nitrile gloves  to 50% by 2013 from the present 35% to cashin on the changing demand for natural rubber and nitrile gloves. It alsoexpects to unveil new glove products by 2QFY12 that  will contribute  earnings by 3QFY12. We  are positive on  the company's strategygoing forward. Maintain Buy.

Ramping up nitrileglove (NBR) mix to 50%, or 10bn pieces a year, by 2013. This is a significantshift in product mix and an increase from the current NBR portion of 35%. To implementthis, the company will replace the older natural rubber (NR) lines in itsexisting factory (Lot 6070) to make way for capacity to produce 1.4bn pieces ofnitrile gloves while its new factory in Glove City (Lot 6058) will provideannual capacity for 3.8bn pieces. The earnings contribution from both Lot 6070and 6058 should come in by 3QFY12 and 2013 respectively.

Unveiling newproducts in 2QFY12; earnings to flow by 3QFY12. Supermax expects to launchnew glove products  globally  starting from 2QFY12. Although the companydid not reveal the type of glove to be produced, we  surmise that it may be a mix of NR and NBRgloves, and that it would be lighter and thinner. Our guess is that it wouldalso be an examination glove since  morethan  90% of  the company's products  target the medical segment.

NR latex price tocome down in 2H12. Although management acknowledged that NR latex pricewould continue to be volatile due to over-speculation and intervention by the Thaigovernment, it expects prices to begin to trend down again from 2H12. Thiswould be on the back of: i) new NR latex supply from Cambodia and SouthVietnam; ii)  declining demand for NRlatex as existing NR glove producers gradually shift to NBR gloves, and iii)the market preference for thinner gloves, which would mean that less NR latexwill be used eventually. As such, management expects NR latex price to drop toRM6.00/kg. We think that the price could fall to this level if there is nofloor price for hard rubber (proposed at RM11.84/kg) and the tension in Irandoes not stoke a further rise in crude oil price.

Maintain Buy. Ourfair value for Supermax remains unchanged at RM2.50, based on the existing PERof 13x FY12  EPS. We are positive on itsmove to go big  on  NBR as the examination glove market is  a dynamic  one where  preferences for glove  types may change rapidly, especially when aprice difference arises.

Source: OSK188

No comments:

Post a Comment