Supermax upgraded to ‘buy’

PETALING JAYA: Value has emerged in Supermax Corp Bhd, according to RHB Research Institute as it upgraded its call on the glovemaker to “buy”.

The brokerage has indicated potential buying opportunities in the stock following the 8% decline in its share price year-to-date, despite the glovemaker’s “robust 2019 core net profit growth estimated at 17%”.

Supermax’s net gearing has also declined to 25% in the second quarter of financial year 2019 (2Q19), as compared to 28% in FY18.

RHB Research Institute has maintained its target price for Supermax at RM1.85, implying a forward price-to-earnings ratio of 16.5 times for 2019.

The earnings forecasts were also left unchanged.

Commenting on Supermax’s recently-announced results, RHB Research Institute said that the company’s core net profit of RM68mil was in line with expectations, “reaching 56% of our and 52% of street FY19 estimates”.

“Excluding the one-off RM6.5mil insurance claim for consequential loss due to fire at its plant in 1Q19, the first half of financial year 2019 (1H19) core net profit grew 28% year-onyear to RM68mil. This was helped by a 16% increase in revenue during 1H19, and lower effective tax rate of 30.2%.

“The lower effective tax rate was due to lower tax rates in foreign jurisdictions and higher capital allowances claimed amid ongoing capacity expansion,” it said.

In a separate note, CIMB Research said that Supermax’s total glove production capacity is expected to grow by 25.6% to 28.1 billion pieces by end-2019. Following the completion of the upgrading works at one of its existing plants, Block G in Kamunting, Perak in Oct 2018, Supermax began upgrading works on a new plant in Klang, Selangor.