What is supermx price now?? Why feature now? RM 4.86
All the top loser is rubber stock, all drop more than 10 cents:
Top Glove 5.85
Kossan 3.19
Supermx 4.87
Supermax and Latexx remain our top picks.
• Concern #1 – Too much expansion on hand. Massive capacity expansion plans
by most of the companies have stirred fears of a potential glut. We do not think that
this will be an issue as demand for rubber gloves remains resilient and is still
estimated to grow at an average rate of 8-10% p.a. Slight excess capacity is not
uncommon as traditionally glove makers operate at 70-75% utilisation rates instead
of the full capacity seen over the past year.
• Concern #2 – Weakening of US$ and high latex prices. Investors are also
worried that the weakening US$ and high latex prices will erode margins and
earnings. We are not unduly worried as this is not the first time that glove
manufacturers are facing this situation. Like in the past, ASPs can be adjusted for
higher cost and weaker US$ and unfavourable trends have only a temporary effect.
• Concern #3 – Removal of gas subsidies. The recent move by the government to
cut subsidies for fuel and sugar has stirred fears that power subsidies could be the
next target. As natural gas is the main source of energy for rubber glove
manufacturers, a rollback of this subsidy could lead to earnings and margin
squeeze. But again, the higher cost can easily be passed down as it represents just
a small portion of total costs, i.e. 8% compared to 56% for latex.
• Concern #4 – Squeezed margins. Another concern that is consistently being
raised by investors is margin erosion for the glovemakers. Given the resilience of
rubber glove demand, we are not worried about this as glove manufacturers have
been consistently working on an absolute profit per glove sold for many years. As
selling prices are revised upwards or downwards to reflect changes in cost and
RM:US$ rate, margins will also change. More importantly, the absolute margin per
box of gloves should remain intact.
• Concern #5 – Stretched valuations. While it is true that rubber stocks have
performed very well, they continue to trade at a discount to the market instead of the
premium that they historically traded at. Despite improving share liquidity, the sector
now stands at an average FY10 forward P/E of 10.1x or just half the peak seen for
some of the manufacturers as compared to the levels they were trading at back in
2006/07. The stocks are also trading at a huge discount to the market, which is
currently trading at an FY10 P/E of 15.6x. We believe that rubber glove companies
are still undervalued, considering the huge earnings upside from expansion
programmes, which are supported by the steadily rising demand from the healthcare
industry.
More:
http://research.cimb.com/index.php?ch=5013&pg=5015&ac=30376&bb=file
Supermax’s 1HFY10 results were within expectations. However, its net profit wasl lower by 10.9% q-o-q as examination glove demand normalized amid high latex prices and an unfavorable RM/USD exchange rate. Going forward, the industry expects latex price to average RM6.50-RM7.00/kg in 2H10. Maintain Buy.
Within estimates. Supermax’s 1HFY10 results were within consensus and our expectations, making up 52% and 50% of the FY10 forecasts. The 2QFY10 revenue of RM234.8m was 6.4% higher q-o-q, again mainly contributed by higher selling prices of gloves as the company passed on the higher latex cost to its customers. The increase was also in line with the reasonably good demand for medical examination gloves in the quarter under review, which allowed Supermax to pass on about 90% of its cost increase to customers. Nevertheless, the 2QFY10 net profit of RM45.9m was 10.9% lower q-o-q on normalizing examination glove demand amid high latex price and an unfavorable exchange rate during the quarter. Finally, YTD revenue and net profit continued to be higher, bolstered mainly by a bigger production capacity and higher selling prices of gloves.
Latex price remains high at RM7.26/kg in 2QFY10. Prices were high due to several factors such as the strong rubber demand from the automotive industry in China. Contrary to expectations, latex price, which should have started to fall back in 2H10 after the wintering season of rubber trees, surprisingly continued to hover at a high average of RM6.95/kg until 3QFY10, possibly due to El Nino and La Nina weather anomalies and speculative buying of the commodity. We gather from rubber glove manufacturers that the price in 2H10 should be between RM6.50-RM7.00/kg. Hence, we see some margin compression for all rubber glove manufactures going forward, especially as demand for examination gloves normalizes.
Maintain Buy. Our target price for Supermax remains unchanged at RM9.11, based on the existing PER of 15x FY11 EPS. We continue to like the company’s ideal product mix (>70% natural rubber gloves) targeting the right markets in developing countries. Going forward, this company is poised to be one of the biggest beneficiaries of rising hygiene standards in developing countries such as China and India as health awareness grows.
