RIGHT MIX: Photo shows Supermax’s booth at an international medical trade fair in Duesseldorf, Germany. Supermax remains OSK Research’s top sector pick because Yap believes the theme for FY12 would be natural rubber gloves, for which the company has just the right product mix.
KUCHING: Supermax Corporation Bhd’s (Supermax) stock is seen as being ‘highly liquid and appealing’ even prior to the issuance of a 1-for-1 bonus exercise with an ex-date set for January 26 this year.
Elaborating on this, OSK Research Sdn Bhd (OSK Research) analyst Jason Yap told The Borneo Post, “Even before this bonus issue, Supermax’s shares are already the most liquid among its peers, which makes it very attractive for investment and trading among fund managers and retail investors. We expect this bonus issue to further enhance its appeal.
“We believe there is still opportunity for ourselves and the industry to upgrade the company’s earnings forecasts going forward. Our existing forecast only factors in a 32 per cent earnings growth but its accuracy of course would depend on how the company closes its financial year 2011 (FY11) accounts.”
Having stated that, Yap believed OSK Research’s FY11 net profit forecast of RM106.5 million was achievable since Supermax had already chalked up RM78 million in earnings for the first nine months of FY11.
That left only RM28.5 million for the remaining quarter to close the gap. Its net profit for the third quarter of FY11 alone already totaled RM30.9 million despite the challenges of a higher average latex price and less favourable foreign exchange conditions.
Yap pointed out that given that Supermax and Top Glove Corporation Bhd (Top Glove) shared the same product mix, and the latter had conservatively guided for a net profit growth of 30 per cent while the research house was looking at a revised growth of close to 50 per cent, he thought that Supermax could match the Top Glove’s numbers, especially since it also enjoyed a secondary income from its distribution division.
“The only possible reason we can think of why Supermax may not achieve the same growth pace as Top Glove is that the latter is coming from a lower base given that its FY11 net profit sank 53.9 per cent year-on-year (y-o-y) while Supermax’s FY11 net profit is expected to be lower by only 36.6 per cent y-o-y.”
Supermax remained OSK Research’s top sector pick because Yap believed the theme for FY12 would be natural rubber gloves, for which the company had just the right product mix (70 per cent natural rubber).
This was in view of favourably low latex prices which he said made up about 60 to 70 per cent of the total cost for the company. Lower prices meant upside in bottom line earnings for manufacturers.
In addition, Supermax was only one rung down from Top Glove, being the world’s second largest examination rubber glove producer, and yet its share’s price earnings valuation was 70 per cent more attractive than Top Glove’s and its shares stood out among its listed peers in terms of liquidity.
Yap kept keeping the glove maker’s FY12 forecast unchanged pending the release of its fourth quarter (4Q) FY11 results as well as ‘fresh guidance’ from the company’s management.
He stated that upon completion of the 1-for-1 bonus exercise, the fair value for Supermax would be adjusted to RM2.75 per share ( with the pre-bonus issue fair value at RM5.50 per share), based on the existing price earnings ratio of 13 times FY12 earnings per share.