SUPERMX (7106) - Supermax Corp - Higher costs and competition
Target RM2.21 (Stock Rating: HOLD)
FY14’s net profit came in below our (94% of FY14 forecast) and consensus’ estimates (88%) as intense competition reduced selling prices and start-up cost of its new plants dragged down its 4Q earnings. FY14’s revenue was impacted by capacity constraints in 1H, lower raw material prices and higher competition in 4Q, while net profit was also dragged down by weak associate contribution and a higher effective tax rate. We cut our FY14-16 EPS by 7-8%, lowering our target price (12.6x P/E CY16, 40% discount to Hartalega). We maintain Hold. While FY14’s results were weak, Supermax should deliver earnings growth in FY15 as new capacity is rolled out. It declared a final DPS of 3 sen for a full-year DPS of 5sen, above our expectations of 4.4 sen. We prefer Kossan.
Weaker FY14 performance
Supermax’s FY14 revenue dropped 3.9% while net profit declined 15.8% yoy. The top line was mainly impacted by its 1HFY14 results in which revenue dropped 27.7% as the group was affected by (i) the temporary loss of production caused by the fire at its Alor Gajah plant in 4Q 2o13, and (ii) lower selling prices due to competition and lower raw material prices. In 4QFY14, Supermax’s revenue jumped by 34.6% yoy mainly due to the full recovery of its Alor Gajah plant and a stronger US$ vs. RM, to a lesser extent. Although 4QFY14’s revenue was much stronger, net profit declined 20.2% due to start-up costs (RM11m) incurred as the group continued to install and test run its new lines of its two new plant and as margin in 4QFY13 was exceptionally high due to a large drop in latex prices in 4QFY13 (Supermax locked in much of its raw material requirements in mid-4Q when latex prices were at their lowest). The lower full-year net profit was also due to (i) lower associate profit in 9M, and (ii) stocking up cost on the resumption of full running of Alor Gajah plant. The lower full-year net profit was also due to the slightly higher effective tax of 22% in FY14 vs. 19.7% in FY13. Supermax aims to achieve full commercial production of the new plants by end-2015. It is running at 85% utilisation rate.
Intense competition impacted qoq numbers
Revenue declined 7.1% qoq due to intense competition especially in the nitrile segment, while net profit declined much more than revenue due to the much-higher effective tax rate of 38.3% in 4Q versus only 15.2% in 3Q.
Source: CIMB Daybreak - 02 March 2015
Target RM2.21 (Stock Rating: HOLD)
FY14’s net profit came in below our (94% of FY14 forecast) and consensus’ estimates (88%) as intense competition reduced selling prices and start-up cost of its new plants dragged down its 4Q earnings. FY14’s revenue was impacted by capacity constraints in 1H, lower raw material prices and higher competition in 4Q, while net profit was also dragged down by weak associate contribution and a higher effective tax rate. We cut our FY14-16 EPS by 7-8%, lowering our target price (12.6x P/E CY16, 40% discount to Hartalega). We maintain Hold. While FY14’s results were weak, Supermax should deliver earnings growth in FY15 as new capacity is rolled out. It declared a final DPS of 3 sen for a full-year DPS of 5sen, above our expectations of 4.4 sen. We prefer Kossan.
Weaker FY14 performance
Supermax’s FY14 revenue dropped 3.9% while net profit declined 15.8% yoy. The top line was mainly impacted by its 1HFY14 results in which revenue dropped 27.7% as the group was affected by (i) the temporary loss of production caused by the fire at its Alor Gajah plant in 4Q 2o13, and (ii) lower selling prices due to competition and lower raw material prices. In 4QFY14, Supermax’s revenue jumped by 34.6% yoy mainly due to the full recovery of its Alor Gajah plant and a stronger US$ vs. RM, to a lesser extent. Although 4QFY14’s revenue was much stronger, net profit declined 20.2% due to start-up costs (RM11m) incurred as the group continued to install and test run its new lines of its two new plant and as margin in 4QFY13 was exceptionally high due to a large drop in latex prices in 4QFY13 (Supermax locked in much of its raw material requirements in mid-4Q when latex prices were at their lowest). The lower full-year net profit was also due to (i) lower associate profit in 9M, and (ii) stocking up cost on the resumption of full running of Alor Gajah plant. The lower full-year net profit was also due to the slightly higher effective tax of 22% in FY14 vs. 19.7% in FY13. Supermax aims to achieve full commercial production of the new plants by end-2015. It is running at 85% utilisation rate.
Intense competition impacted qoq numbers
Revenue declined 7.1% qoq due to intense competition especially in the nitrile segment, while net profit declined much more than revenue due to the much-higher effective tax rate of 38.3% in 4Q versus only 15.2% in 3Q.
Source: CIMB Daybreak - 02 March 2015
