Affin IB Research upgrades Supermax to Buy, raises target price

Affin IB Research upgrades Supermax to Buy, raises target price
Business & Markets 2013
Written by theedgemalaysia.com
Wednesday, 04 September 2013 08:51

KUALA LUMPUR (Sept 4): Affin IB Research has upgraded Supermax Corpoartion Bhd to a Buy (from Add) at RM2.33 with a higher target price of RM2.82 (from RM2.32) after visiting the company’s newest production facilities (Plants 10 and 11) in Meru, Klang.

In a note Wednesday, the research house said Supermax had guided that these 2 plants (equipped with interchangeable lines for both natural rubber (NR) and nitrile) would be completed by 1Q14 and that they have successfully secured orders for 60% of the total production capacity for Plant 10 and 11 from both new and existing customers.

“Backed by: 1) resillient demand growth; 2) favorable raw material prices; and 3) Supermax’s healthy plant automation to boost operating efficiencies, we remain positive on the group’s prospects going forward.

“We raise our target price for Supermax to RM2.82 (from RM2.32) attaching a higher target PER of 12x vis-à-vis 10x previously in light of the group’s improve earnings visibility spurred by its healthy capacity expansion on both nitrile and surgical gloves which typically fetch higher margins as compared to NR gloves.

“With an upside potential of +21%, we upgrade the stock from Add to Buy. Importantly, we think that Supermax’s current valuation at 8.6x FY14 PER is highly attractive, and there is scope for a re-rating closer to the prevailing industry average of 14x,” it said.