Supermax chalks up RM31m Q1 pre-tax profit

Supermax Corporation Bhd, the world's second largest rubber gloves maker, chalked up a pre-tax profit of RM30.705
million for the first quarter ended March 31, 2012, from RM25.614 million, recorded in the corresponding quarter of last year.

Revenue
rose three per cent to RM248.522 million, during the period under
review, from RM241.370 million recorded in the corresponding quarter
last year, on the back of stronger demand for rubber gloves.

"The
stronger demand was attributed to customers taking advantage of average
selling prices that were about 20 per cent lower compared with last
year.

"Global demand for rubber gloves remain strong," said
Datuk Seri Stanley Thai, Supermax Executive Chairman and Group Managing
Director.

The improvement in profitability was largely due to
lower raw material costs (natural rubber latex prices fell by 27 per
cent during this period) as well as greater operating efficiency at all
of its factories, he said in a statement.

The Group achieved earnings per share of 4.12 sen for the reporting quarter.

Thai said with the very challenging year of 2011 behind Supermax, the group looked forward to a better year ahead.

He
said with more and more rubber supply coming on stream, Supermax
expected prices to continue to moderate to between RM6.00 and RM6.50
per kg for this year.

Nitrile prices have also eased by about
11 per cent to the US$1,600 per metric tonne compared with nearly
US$1,800 per tonne at the end of last year and this should contribute
to greater profitability, Thai added.

The group's manufacturing
operations in Malaysia is expected to expand its surgical and nitrile
glove capacity to meet global customer demands.

Its
distribution unit in Chicago, United States, will have a new office and
warehouse on a newly purchased 5.62 hectare land earmarked to be
Supermax's national distribution headquarters for its American
operations.

The facility would be operational by the first half of next year, it added. -- Bernama

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Result



Supermax recorded RM28mil net profit in 1Q2012, which is 15% higher yoy and flat qoq. Similarly, the turnover was 3% higher yoy at RM248.5mil, but stood at 10% lower qoq.
The net earnings of RM28mil was in line with our expectation, meeting 21.3% of our full year forecast but below market expectation which is only 19% of the street’s. Meanwhile, the revenue is slightly lower than our initial projection, accounted for 19.5% of our full year estimates vis-à-vis consensus’ 21.1%.

Comment


Latex price susceptibility - 1Q2012 performance improved tremendously yoy on the back of lower raw material cost as the latex price dipped 27% during the period (1Q12: RM7.5/kg against 1Q11: RM10.2/kg). However, the Natural Rubber (NR) price rebounded since the start of the year to hover around RM7.8-8/kg during the first quarter and the company was further hit by the weakening USD in the same period, which probably explains the flattish and uninspiring qoq results.
Strengthening its foothold abroad – The Group acquired a 14 acres of land in Chicago, USA to construct a new office and warehouse in February this year. Furthermore, Supermax had increased its stake in Supermax Canada to 67% from 50%, with the subsidiary financial results to be consolidated into Supermax’s 3Q2012 results onwards. We are positive on both moves as it will potentially enhance Supermax’s presence in the North American region.
No cheap rubber – Latex price stood at RM7.14 as of 28 May 2012, which is 12.3% higher YTD. We expect the NR price to gyrate at current level in near term as the global demand on rubber is weak at the moment following the slow growth in China and thorny debt crisis in Europe. However, we expect the rubber price to trend higher in the second half amid the recovery in the global automotives sector, further spurred by Thai’s action to stock up on rubber in order to drive up the price. We maintain our forecast of latex price at an average of RM7.80/kg in 2012 against average of RM7.45 YTD.

Valuation & Recommendation


Maintain BUY with a Target Price of RM2.13 – Our TP is derived after ascribing a 11x PER FY2012, to be in line with its +1 SD 5-year average PER.
Supermax remains our cherry-pick of the sector as we like its top Original Brand Manufacturer (OBM) status, overseas establishment and near-term contribution from its surgical gloves division. Furthermore, the stock fell 6.5% YTD, making our TP a potential 19% upside from the current price.