KUCHING: Supermax Corporation Bhd (Supermax), a major glove manufacturer listed on the Main Market, is targeting an increase in its mix of nitrile gloves from the present 35 per cent to 50 per cent by 2013 to cash in on the changing demand for natural rubber and nitrile gloves.
The glove maker also expected to unveil new glove products by the second quarter of financial year 2012 (2QFY12); these new items would contribute earnings by 3QFY12, according to the company’s management.
BUSINESS STRATEGIES: Photo shows Supermax’s booth at an international medical industry trade fair. Along with a target to increase its mix of nitrile gloves 50 per cent by 2013, the glove maker also plans to introduce new products by 2QFY12.
OSK Research Sdn Bhd (OSK Research) noted in a research report, “Although the company did not reveal the type of glove to be produced, we surmise that it may be a mix of natural rubber (NR) and nitrile butadiene rubber (NBR) gloves, and that it would be lighter and thinner.
“Our guess is that it would also be an examination glove since more than 90 per cent of the company’s products target the medical segment.
“We are positive on its move to go big on NBR as the examination glove market is a dynamic one where preferences for glove types may change rapidly, especially when a price difference arises.” To attain the new 50-50 mix, or 10 billion pieces per annum, the company would replace the older NR lines in its existing factory to make way for capacity to produce 1.4 billion pieces of nitrile gloves.
Meanwhile, its new factory in Glove City would provide annual capacity for 3.8 billion pieces.
The earnings contribution from both facilities should come in by 3QFY12 and 2013 respectively.
Although Supermax acknowledged that NR latex price would continue to be volatile due to over-speculation and intervention by the Thai government, it expected prices to begin to trend down again from the second half of this year.
This would be on the back of new NR latex supply from Cambodia and South Vietnam, declining demand for NR latex as existing NR glove producers gradually shift to NBR gloves and the market preference for thinner gloves, which would mean that less NR latex would be used eventually.
As such, the company expected NR latex price to drop to RM6 per kilogramme (kg).
The research house opined that the price could fall to this level if there was no floor price for hard rubber (proposed at RM11.84 per kg) and the tension in Iran did not stoke a further rise in crude oil price.
OSK Reseach maintained the fair value for Supermax unchanged at RM2.50 per share, based on the existing price earnings ratio of 13 times FY12 earnings per share.