PP10551/09/2011(028936) 16 May 2011

MALAYSIA EQUITY Investment Research Daily

1QFY11 Results Review

Jason Yap +60 (3) 9207 7698 Jason.yap@my.oskgroup.com

Supermax Corporation
Affected By External Factors
RM6.91 RM6.91 RM3.96
Supermaxs 1QFY11 results were below expectations. As anticipated, the results were lower owing to the higher latex price, forex losses and slower-than-expected demand for examination gloves from certain countries. With that, 1QFY11 net profit dropped by 25.5% q-o-q and 52.6% YTD due to margin compression on higher latex price coupled with an unfavorable exchange rate. However, we still maintain our Buy call on the stock. Within a 6 to 12 months horizon, we think Supermaxs earnings stand a strong chance to re-rate. Below expectations. Supermaxs 1QFY11 results were below consensus and our expectations, making up 14% and 16% of FY11 forecasts. As highlighted in our result preview note recently, we had anticipated a poorer-than-expected results due to the higher latex price, which rose 18% or RM1.57 from RM8.58/kg in 4QFY10 to RM10.15/kg in 1QFY11, potential forex losses and likely slower-than-expected demand for examination gloves from certain countries, especially the developing countries for natural rubber gloves We believe this reported poor 1QFY11 results was inline with our earlier view. Although 1QFY11 revenue was up 3.7% q-o-q and 9.4% YTD following the higher selling prices of gloves on incorporating higher latex cost and production capacity, its net profit continue to fall by 25.5% q-o-q and 52.6% YTD due to margin compression on higher latex price coupled with an unfavorable exchange rate. Maintain Buy. Our target price for Supermax of RM6.91 is based on a PER of 13x FY12 EPS. As mentioned earlier, we think Supermaxs valuation still stands out over some of its peers given that the company is only trading at a single-digit PER. Within a 6 to 12 months horizon and provided the latex price does not break its recent high of about RM11.00/kg and continues its recent uptrend, we think Supermaxs earnings stand a strong chance to re-rate as it can then pass on the latex cost increase to its customers in a more accurate and timely manner.

BUY
Fair Value Previous Price

RUBBER GLOVES Supermaxs principal activities are in the manufacture of medical rubber gloves. Stock Statistics Bloomberg Ticker Share Capital (m) Market Cap (RMm) 52 week HL Price (RM) 3mth Avg Vol (000) YTD Returns Beta (x) Major Shareholders (%) Dato Seri Stanley Tai Datin Seri Cheryl Tan EPF Share Performance (%) Month Absolute 1m -4.0 3m -7.4 6m -10.2 12m -22.7

SUCB MK 340.08 1346.72 6.60 3.75 825.4 2.0 1.45

20.41 15.09 9.00

Relative -2.0 -7.7 -11.7 -33.4

6-month Share Price Performance

6.50

5.50

4.50

3.50

2.50 Oct-10 Nov-10 Dec-10 Jan-11 Mar-11 Apr-11

FYE Dec (RMm)

Revenue Net Profit % chg y-o-y Consensus EPS (sen) DPS (sen) Dividend yield (%) ROE (%) ROA (%) PER (x) BV/share (RM) P/BV (x) EV/ EBITDA (x)

FY08
811.8 47.0 -20.9 13.7 4.0 1.0 11.5 5.1 29.0 1.29 3.2 14.3

FY09
814.8 129.8 176.1 37.7 11.0 2.8 26.3 13.5 10.5 1.68 2.6 9.2

FY10
923.3 168.2 29.6 50.7 11.0 2.8 26.6 16.0 7.8 2.13 2.0 8.6

FY11f
1,127.5 155.5 (7.5) 166.0 46.9 11.5 2.9 20.2 12.9 8.4 2.52 1.7 9.3

FY12f
1,227.8 176.4 13.4 184.0 53.2 13.5 3.4 19.5 13.2 7.4 2.95 1.4 7.8

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OSK Research Results Table (RMm) FYE Dec Turnover EBITDA Depreciation Net interest expense Associates PBT before EI EI PBT Tax MI Reported Net Profit Core Net Profit Core EPS (sen) DPS (sen) EBITDA margin NTA/share (RM) 1Q11 241.4 29.5 -11.0 -3.3 10.5 25.6 0.0 25.6 -1.2 0.0 24.4 24.4 7.2 0.0 12.2% 2.08 4Q10 232.7 33.1 -10.7 -2.3 12.8 32.8 0.0 32.8 -0.1 0.0 32.7 32.7 9.6 2.5 14.2% 2.08 Q-o-Q chg 3.7% -10.9% 3.0% 43.1% -18.0% -22.0% -22.0% 1086.3% -25.5% -25.5% YTD FY11 241.4 29.5 -11.0 -3.3 10.5 25.6 0.0 25.6 -1.2 0.0 24.4 24.4 7.2 0.0 12.2% 2.08 YTD FY10 220.7 58.2 -10.7 -3.7 10.5 54.3 0.0 54.3 -2.8 0.0 51.5 51.5 19.0 0.0 26.4% 2.03 Y-o-Y Comments chg 9.4% -49.4% 3.5% -11.4% 0.4% -52.8% -52.8% -56.9% -52.6% -52.6% Lower in line with lower EBITDA. Higher due to the higher selling prices of gloves on incorporating higher latex cost and production capacity. Lower due to margin compression on higher latex price coupled with unfavorable exchange rate.

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OSK Research

EARNINGS FORECAST

FYE Dec (RMm) Turnover EBITDA PBT Net Profit EPS (sen) DPS (sen) Margin EBITDA (%) PBT (%) Net Profit (%) ROE (%) ROA (%) Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders Funds Net Gearing (%)

FY08 811.8 115.2 52.0 47.0 13.7 4.0 14.2 6.4 5.8 11.5 5.1 507.2 477.5 984.7 387.4 90.1 168.7 428.6 78.1

FY09 814.8 162.3 152.1 129.8 37.7 11.0 19.9 18.7 15.9 26.3 13.5 569.5 364.6 934.1 202.2 162.4 173.9 558.0 31.5

FY10 923.3 174.5 177.4 168.2 50.7 11.0 18.9 19.2 18.2 26.6 16.0 614.8 546.6 1,161.5 289.5 257.1 165.9 706.1 27.0

FY11f 1,127.5 155.2 165.5 155.5 46.9 11.5 13.8 14.7 13.8 20.2 12.9 783.2 471.5 1,254.6 254.6 216.9 165.9 834.2 16.3

FY12f 1,227.8 174.4 187.6 176.4 53.2 13.5 14.2 15.3 14.4 19.5 13.2 843.6 582.3 1,425.9 281.7 300.6 165.9 978.3 5.2

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OSK Research

OSK Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated (NR): Stock is not within regular research coverage All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. Distribution in Singapore This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an Institutional Investor, Expert Investor or Accredited Investor, this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd (DMG). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research. Published and printed by :OSK RESEARCH SDN. BHD. (206591-V) (A wholly-owned subsidiary of OSK Investment Bank Berhad)

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