SUPERMX (7106) - Supermax Corp - A visit to Supermax’s new plants
Target RM2.21 (Stock Rating: HOLD)
We recently visited Supermax’s new plants 10 and 11 which started operations in Aug 2014. The company is confident of achieving full commercial production by year-end as the infrastructure is already in place. Its earnings in the next two years will be driven by the new plant capacity, while its fledgling contact lens business should also start to contribute. We maintain our Hold rating on Supermax, with an unchanged target price (12.6x CY16 P/E, its 3-year historical P/E mean, ~40% discount to Hartalega).
What Happened
We recently visited Supermax’s new manufacturing plants (10 and 11) in Meru, Klang. The visit, hosted by CEO Dato Sri Stanley Thai, began with a briefing, followed by a plant tour to showcase the new production lines in plants 10 and 11, as well as facilities like a mini power generation station and water tanks. We also saw its new packaging machines. Plants 10 and 11 can accommodate 20 production lines which are capable of producing 6.2bn pieces of nitrile gloves per annum. This will increase its nitrile capacity from 41% of the total production capacity to 55% by end-2015. The first batch of production lines in the two new manufacturing plants have been operating since Aug 2014, while the remaining lines will be gradually installed.
What We Think
Supermax’s new lines can run at an average speed of ~45k pieces/hour while its automation has reached the final stage which is on par with its peers. It is currently trial-running its automated packaging machine. We are encouraged to see that Supermax’s R&D investment to develop a new patented packaging method is finally bearing fruit. This new packaging method makes it easier to retrieve gloves as compared to the conventional box packaging. It will also help its customers save logistic costs. As the infrastructure is now in place, Supermax should be able to achieve full commercial production from plants 10 and 11 by end-2015. Its delivery lead-time currently is as long as four-to-five months due to capacity constraints. Hence, it should be able to fill up its new capacity in plants 10 and 11. While the company is still awaiting for the infrastructure for its glove city, the new production capacity from plants 10 and 11 should be able to provide earnings growth in FY15 and FY16. Its venture into the contact lens business will also help boost earnings growth.
What You Should Do
Investors should stay on the sidelines. Smooth earnings delivery and expansion plans execution going forward are crucial for a stock rerating.
Source: CIMB Daybreak - 23 March 2015
Target RM2.21 (Stock Rating: HOLD)
We recently visited Supermax’s new plants 10 and 11 which started operations in Aug 2014. The company is confident of achieving full commercial production by year-end as the infrastructure is already in place. Its earnings in the next two years will be driven by the new plant capacity, while its fledgling contact lens business should also start to contribute. We maintain our Hold rating on Supermax, with an unchanged target price (12.6x CY16 P/E, its 3-year historical P/E mean, ~40% discount to Hartalega).
What Happened
We recently visited Supermax’s new manufacturing plants (10 and 11) in Meru, Klang. The visit, hosted by CEO Dato Sri Stanley Thai, began with a briefing, followed by a plant tour to showcase the new production lines in plants 10 and 11, as well as facilities like a mini power generation station and water tanks. We also saw its new packaging machines. Plants 10 and 11 can accommodate 20 production lines which are capable of producing 6.2bn pieces of nitrile gloves per annum. This will increase its nitrile capacity from 41% of the total production capacity to 55% by end-2015. The first batch of production lines in the two new manufacturing plants have been operating since Aug 2014, while the remaining lines will be gradually installed.
What We Think
Supermax’s new lines can run at an average speed of ~45k pieces/hour while its automation has reached the final stage which is on par with its peers. It is currently trial-running its automated packaging machine. We are encouraged to see that Supermax’s R&D investment to develop a new patented packaging method is finally bearing fruit. This new packaging method makes it easier to retrieve gloves as compared to the conventional box packaging. It will also help its customers save logistic costs. As the infrastructure is now in place, Supermax should be able to achieve full commercial production from plants 10 and 11 by end-2015. Its delivery lead-time currently is as long as four-to-five months due to capacity constraints. Hence, it should be able to fill up its new capacity in plants 10 and 11. While the company is still awaiting for the infrastructure for its glove city, the new production capacity from plants 10 and 11 should be able to provide earnings growth in FY15 and FY16. Its venture into the contact lens business will also help boost earnings growth.
What You Should Do
Investors should stay on the sidelines. Smooth earnings delivery and expansion plans execution going forward are crucial for a stock rerating.
Source: CIMB Daybreak - 23 March 2015
