KUCHING: Supermax Corporation Bhd’s (Supermax)financial year 2017 (FY17) came below expectations, due to higher-than-expected effective tax rate, analysts observed.
Kenanga Research, the research arm of Kenanga Investment Bank Bhd, pointed out that this quarter marked the fourth consecutive quarterly earnings disappointment.
On quarter-on-quarter (q-o-q) basis, it pointed out that the fourth quarter of 2017 (4Q17) revenue rose 1.4 per cent due to lower volumes sales but more than offset by higher average selling prices (ASPs).
There were no guidances in terms of actual volume sales and ASPs growth in their results commentary, it noted.
“We believe higher input raw material during the wintering months resulted in higher ASPs which led to lower volume sales,” it opined.
It also noted that 4Q17 profit before tax (PBT) rose 73 per cent due to the low base effect in 3Q17 as PBT margin expanded by 4.8ppts to 11.5 per cent due to lower input raw material prices and an insurance payment received.
“However, due to a lumpy tax payment registered this quarter, 4Q17 PATAMI fell 58 per cent to RM8.3 million, dragged down by higher effective tax rate of 66 per cent compared to eight per cent in 3Q17,” it added.
On a yearly basis, Supermax’s 12M17 net profit of RM70.2 million came in below expectations.
“The negative deviation from our forecast was due to higher-than-expected effective tax rate. 12M17 revenue rose three per cent (comparable 12M period) due to higher output recorded from some refurbishment work done, higher average selling prices in response to increased raw material prices as well as a stronger US dollar versus ringgit.
“Overall higher raw material prices, pre-operating costs incurred on new start-ups overseas as well as advertising & promotional costs incurred in launching new contact lens products overseas eroded margin.
“As a result, PBT margin was lower by 1.8ppts to 9.8 per cent from 10.6 per cent in 12M16. This brings 12M17 PATAMI to RM70.2 million (down 32 per cent y-o-y) dragged down by higher effective tax rate of 33.6 per cent compared to 21.6 per cent in 12MFY16,” it explained.
On the company’s outlook, Kenanga Research said there were no guidances in terms of new capacity expansion, volume sales and ASPs in the results commentary and details were also scant in terms of the outlook.
“Looking ahead, additional expenses will be incurred over the next 12 months to gain a larger share of the global contact lens market.
“However, due to the scant details, we are now unable to ascertain further progress of these plants,” it said, noting that a few quarters ago, two plants are expected to ramp up capacity by 32 per cent to 23.2 billion, catering entirely to producing nitrile gloves and to be installed from 2015 to 2016.
Overall, Kenanga Research pegged a ‘market perform’ call on the stock. However, it downgraded its forecast of the company.
It said, “Due to the poor visibility in terms of forward looking guidance and the weaker-than-expected results, we downgrade FY18E and FY19E net profits by 11 and six per cent, respectively, to take into account the higher-than-expected expenses and taxes.”