Insider Asia’s Stock Pick: Supermax Corp

by **Cals** Sat 25 Oct 2014, 02:00

Insider Asia’s Stock Pick: Supermax Corp
By Insider Asia / Insider Asia | October 24, 2014 : 11:13 AM MYT

Supermax Corp Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)
We had previously highlighted the gloves industry as one of the beneficiaries, as countries struggle to contain the spread of Ebola (refer to The Edge Financial Daily dated October 15, 2014). Demand for protective gear including gloves will rise substantially should the outbreak turns into a global epidemic. Our first pick was Kossan Rubber Industries ([You must be registered and logged in to see this image.] Financial Dashboard), whose share price has since risen by 4.6%.
Trading at a PE ratio of 13.5 times, Supermax is another value proposition for investors looking for an exposure in this sector. As a comparison, Kossan and Top Glove are currently trading at PE multiples of 20.1 times and 17.2 times, respectively.
Supermax is one of the world’s largest rubber gloves makers. Production capacity for nitrile gloves will surge by 127.8% to 12.3 billion pieces per annum by end-2014. Once commissioned, nitrile gloves will form 53% of its total installed capacity. The balance comes from natural rubber gloves.
More expansions are on the drawing board, spanning the next 10 years. This includes the Glove City Project, consisting of 6 manufacturing plants with an installed capacity of 4.1 billion pieces each. Construction is targeted to start in 2015. Additionally, the proposed 100-acre Supermax Business Park will house its Integrated Glove Manufacturing Complex (IGMC) to produce nitrile gloves. The company plans to invest RM700-750 million to build 40 production lines over two phases with total production capacity of 15.5 billion pieces per year.
Supermax has fairly decent fundamentals. The company’s ROE averaged 14.4% for the past three years, while net gearing declined from 29.4% to 17.3% during the same period. Plus, profit margin should improve once the about-to-be completed additional capacity for higher-value nitrile gloves comes onstream.
The company has a minimum 30% dividend payout policy. Dividends totalled 5 sen per share in 2013, translating into a net yield of 2.2%.
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This article first appeared in The Edge Financial Daily, on October 24, 2014.