Supermax’s Glove City project to sustain expansion plan

by **Cals** Thu 21 Jan 2016, 18:16

Supermax’s Glove City project to sustain expansion plan

By CIMB Research / The Edge Financial Daily | January 21, 2016 : 10:26 AM MYT

This article first appeared in The Edge Financial Daily, on January 21, 2016.

[size=16]Supermax Corp ([You must be registered and logged in to see this image.] Valuation: 0.50, Fundamental: 1.00)
(Jan 20, RM3.37)
Upgrade to add with a higher targer price of RM5 (from RM2.95): Supermax’s investor briefing on Tuesday was followed by a tour to its contact lens division and a visit to Plants 10 & 11 in Meru, Klang, hosted by Datuk Seri Stanley Thai, Supermax chief executive officer.

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We are encouraged that Supermax has finally resolved the much-delayed operations of Plants 10 & 11. They have been commissioned with eight lines running since the second half of 2015.

To recap, the deployment of Plants 10 & 11 has been delayed for more than two years due to the lack of water and electricity issues.

As at December 2015, the combined production capacity for both plants was about 2.2 billion pieces per annum (pa), a 17% capacity increase from Dec 14.

Apart from that, management also shared on the development of its Glove City project in Bukit Kapar, Selangor.

This project will include four plants and is expected to sustain the group’s expansion plan until 2021. Each plant is expected to have an installed capacity of 7.9 billion gloves pa.

Supermax is planning to start commissioning Plant 1 in the third quarter of 2017.

We are impressed with the group’s development in the contact lens division. We learned that Supermax has already started producing dry lenses for original equipment manufacturing businesses, albeit at a smaller quantity of three million to four million per month.

Management expects to see a healthy revenue contribution of about 10% from the division in financial year 2018 (FY18).

We are turning optimistic about its growth prospects given that it has finally resolved the utilities issues and management is confident of stronger growth, driven by the Glove City project and the contact lens division.

We raise our FY16 to FY18 earnings per share (EPS) by 15% to 60% as we increase our utilisation rate assumption to over 78% from sub-60% previously as we are more confident of Supermax’s ability to deliver new capacity, following the resumption of its Plant 10 & 11 operations.

We see improving earnings prospects for Supermax on the back of a FY15 to FY18 EPS compound annual growth rate of 21%. — CIMB Research, Jan 20
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