TA Securities

A Member of the TA Group

MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048

RESULTSUPDATE
Monday, May 16, 2011 FBM KLCI: 1,540.74 Sector: Manufacturing

SupermaxCorporationBerhad
Dismal1QFY11Results
THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

TP:RM4.45(+12.4%)
Lasttraded:RM3.96

TA Research Team Coverage

+603-2072-1277 ext: 1626

HOLD
liwong@ta.com.my www.taonline.com.my

Review Q ShareInformation Results fell sharply below expectations. YTD net profit of RM24.4mn, o BloombergCode SUCBMK Q StockCode representing only 12.5% and 15.4% of ours and consensus full year 7106 Listing MainMarket estimates of RM195.4mn and RM158.0mn. Result were also below ShareCap(mn) 340.1 managements guidance. To recap, management was targeting a 15 MarketCap(RMmn) 1346.7 20%YoYriseinbottomline.ThiswouldtranslatetoFY11netprofitof ParValue 0.50 betweenRM193.4mnandRM201.8mnrespectively. 52wkHi/Lo(RM) 6.60/3.75 12mthAvgDailyVol('000shrs) 1792.1 Net profit continued to weaken on a sequentially basis, falling for 5 EstimatedFreeFloat(%) 52.27 consecutivequarters.Similarly,PBTdipped21.9%QoQtoRM25.6mn Beta 1.5 anchored by higher operating expenses (+6% QoQ), increase in MajorShareholders(%) financecosts(fromRM2.3mntoRM3.3mn)and18%fallinprofitfrom DatoSeriStanleyThai35.6 associates. EBITDA dropped by close to 13%, resulting in weaker EPF8.9 EBITDAmarginof10.6%vs.14.1%in4QFY10. Despite softer profits, we note the group tuned in firmer revenue ForecastRevision (+3.7% QoQ) of RM241.4mn as compared to RM232.mn last quarter. FY11 FY12 Topline growth was underpinned by the resilient demand for gloves, (24.02) (22.04) ForecastRevision(%) theincreaseinproductionofnitrilegloves,whicharetraditionally15 148.5 166.0 Netprofit(RMm) 20%moreexpensivethanpowderfreenaturalrubbergloves,andthe ISIEmergingMarketsPDF my-maybankib-hanafi from 202.162.18.31 on 2011-05-19 05:06:05 EDT. DownloadPDF. 158.0 176.4 Consensus abilitytoraiseASP.Accordingtomanagement,theleadtimefororders 94.0 94.1 TA's/Consensus(%) hasexpanded toaround7590daysfrom 4560daysin 3Qlastyear. Hold(Downgraded) PreviousRating Meanwhile,ASPforlatexglovesare2025%higherQoQ. FinancialIndicators Compared to 1Q FY10, net profit sank by 43% YoY from RM51.5mn FY11 FY12 although revenue strengthened 9% YoY from RM220.7mn. EBITDA 0.5 0.4 Netgearing(x) alsofellbymorethan40%YoY,drivenbyrisinglatexcosts.According 1.0 1.8 CFPS(RM) toMRB,averagebulklatexpriceremainshigh,reversingthestartofa 4.0 2.3 P/CFPS(x) MarchdowntrendinApril.Whilelatexpricehaseasedfromahighof 12.4 12.7 ROAA(%) RM10.87/kgonApril7,2011toaroundRM9.46/kgcurrently,weare ROAE(%) 23.2 21.9 concerned about the ability for the latex price to continue correcting 2.0 2.3 NTA/Share(RM) itselftomorereasonablelevelsduetorampantspeculativeactivities. Price/NTA(x) 2.0 1.7 Elsewhere,thegroupsbalancesheetremainshealthywithnetgearing Scorecard ratioofaround0.36x(FY10:0.29x). %ofFY vsTA 12.5 Below Impact vsConsensus 15.4 Below We revise our earnings estimates downwards in tandem with the weakerthanexpected results. Although we are maintaining our SharePerformance(%) revenue forecast, we reduced our net profit projections to SUCB FBMKLCI PriceChange RM148.5/166.0/177.3mnfromRM195.4/212.9/224.2mnontheback 1mth (4.1) 1.2 of a 10.5% increase in our latex price assumption to RM9.50 from 3mth (2.2) 2.3 RM8.60previously.Asaresult,ourEBITDAmarginprojectionhasalso 6mth (4.6) 2.5 fallento15.4%from24%inFY10.Notethatweremainconservative 12mth (23.5) 15.0 with a MYR/USD assumption of RM2.90 vs. Supermaxs average of RM3.05in1QFY11.
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TA Securities
A Member of the TA Group

16/05/11

Outlook WhilewebelievethehealthydemandandtheabilitytoraiseASPwill continuetocompensateoftheriseinlatexcostsandtheappreciation of the MYR, these external headwinds could depress glove players FY11 earnings. Elsewhere, cost cutting measures are continuously beingimplementedtomaintainprofitability. Nitrilegloves nowaccounts forsome 33%oftotalproductionfrom 30% in the previous quarter. Management is still looking to further increase production of nitrile gloves to account for 40 45% of total capacity. Here, we understand that 70% of the groups production linesareinterswitchablebetweennaturalrubberandnitrilerubber. Valuation In line with the downward revision to our earnings estimates, we reduce our TP to RM4.45 from RM6.40. Our valuation is based on FY11eEPStoareducedindustrystargetedPEmultiple10xduetothe challenging macro environment for rubber glove players. With that, we also downgrade Supermax to HOLD from buy premised on the potential12%upsidefromthestockslastcloseofRM3.96.

SharePricerelativetotheFBMKLCI

Source:Bloomberg

Table1:EarningsSummary
FYEDec Turnover Pretaxprofit Netprofit Netprofitadjusted EPS EPSadjusted 2009 803.6 151.5 126.6 126.6 37.2 37.2 2010F 923.3 177.4 168.2 168.2 49.5 49.5 2011F 1135.3 176.8 148.5 148.5 43.7 43.7 2012F 1154.9 197.6 166.0 166.0 48.8 48.8 2013F 1174.4 211.0 177.3 177.3 52.1 52.1

EPSgrowth(%) 169.2 32.8 (11.7) 11.8 ISIEmergingMarketsPDF my-maybankib-hanafi from 202.162.18.31 on 2011-05-19 05:06:05 EDT. DownloadPDF. 6.8 PER 10.6 8.0 9.1 8.1 7.6 Dividend(sen) Dividendyield(%)

11.0 2.8

7.5 1.9

8.0 2.0

8.0 2.0

8.0 2.0

1QFY11 241.4 (222.9) (3.3) 10.5 25.6 (1.2) 24.4 7.2 0.1 QoQ 3.7 6.0 43.1 (18.0) (21.9) >100.0 (25.4) (25.4) YoY 9.4 28.8 (11.4) 0.4 (52.8) (56.9) (52.6) (52.6) YTDFY10 220.7 (173.1) (3.7) 10.5 54.3 (2.8) 51.5 15.1 0.2 YTDFY11 241.4 (222.9) (3.3) 10.5 25.6 (1.2) 24.4 7.2 0.1 YoY 9.4 28.8 (11.4) 0.4 (52.8) (56.9) (52.6) (52.6)

Table2:1QFY11ResultsAnalysis(RMmn) YE31Dec 1QFY10 4QFY10

Revenue Operatingexpenses Financecosts Shareofprofitofassocia Profitbeforetax Taxation Profitaftertax Netprofit PBTmargin(%) 220.7 (173.1) (3.7) 10.5 54.3 (2.8) 51.5 15.1 0.2 232.7 (210.3) (2.3) 12.8 32.8 (0.1) 32.7 9.6 0.1

The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.
for TA SECURITIES HOLDINGS BERHAD(14948-M)
MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048

Disclaimer

(A Participating Organisation of Bursa Malaysia Securities Berhad)

Kaladher Govindan Head of Research

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