10 November 2014 Result Note Less than Super 3Q14 results… Supermax (SUCB)'s 9M14 core net profit of RM80m (-22% yoy) came in below expectations, at 62% and 64% of our and consensus forecasts respectively. This was mainly attributed to weaker revenue (-20% yoy) on the back of lower production output and lower ASPs. Thus, we are downgrading SUCB to a REDUCE with a lower TP of RM2.17. 9M14 core net profit contracted 11.2% yoy.. Supermax reported subdued 9M14 results as revenue declined to RM 748.8m (-20%yoy). This was underpinned by: i) lower production output attribute to ongoing automation activities and ii) lower average selling prices (ASPs) on the back of lower raw material prices. 9M14 EBIT margin however improved 1.1ppts to 13.1%. Nevertheless, SUCB’s core net profit contracted 22%yoy to RM80m due to the lower revenue. A single-tier dividend of 2 sen/share was also declared, bringing into a FY14 dividend payout to 5 sen. 3Q14 core earnings improved 1.6%.. Despite recording a higher 3Q14 revenue of RM278.4m (+17% qoq), SUCB’s core net profit ticked up by only 1.6% to RM27.2m. This was primarily due to weaker EBIT margins which slipped 2.4ppts qoq to 11.5% in tandem with higher operating expenses (+20% qoq). This was on the back of higher cost incurred from stocking up its new factories and the resumption of operations for its Alor Gajah plant. Slashing FY14/15/16 estimates by 15%/14%/10% In view of SUCB’s weaker-than-expected results, we are slashing our FY14/15/16 estimates by 15%/14%/10% as we i) lower our utilisation rates to 73% (from 75%) to factor in its on-going automation works and ii) slightly tweak our cost assumptions in view of rising inflationary pressures. Downgrade to REDUCE with lowered TP of RM2.17 We are downgrading the stock to a REDUCE call (from ADD) with a lower TP of RM2.17 (from RM2.52). This is based on a P/E multiple of 12x (in line with its 5-year mean P/E and CY15 EPS). The risks to our view would be: i) sudden decline in raw material prices, ii) continuous strengthening of USD against RM and iii) weaker-thanexpected pricing competition. Earnings & Valuation Summary FYE 31 Dec 2012 Revenue (RMm) 997.4 EBITDA (RMm) 147.0 Pretax profit (RMm) 137.3 Net profit (RMm) 121.7 EPS (sen) 17.9 PER (x) 13.0 Core net profit (RMm) 121.7 Core EPS (sen) 17.9 Core EPS growth (%) 9.1 Core PER (x) 13.0 Net DPS (sen) 5.0 Dividend Yield (%) 2.1 EV/EBITDA (x) 10.6 2013 1,127.3 148.8 155.1 128.8 18.9 12.3 128.8 18.9 5.8 12.3 5.0 2.1 10.7 Chg in EPS (%) Affin/Consensus (x) 2014E 1,005.4 123.5 137.2 110.4 16.2 14.4 110.4 16.2 -14.2 14.4 5.0 2.1 12.4 2015E 1,102.8 135.5 152.5 123.4 18.1 12.9 123.4 18.1 11.5 12.9 6.0 2.6 11.2 2016E 1,208.6 160.9 178.3 142.5 20.8 11.2 142.5 20.8 15.1 11.2 7.0 3.0 9.2 -15% 0.9 -14% 0.8 -10% 0.9 SUPERMAX SUCB MK Sector: Gloves RM2.33 @ 7 Nov 2014 REDUCE (downgrade) Downside: 7% Price Target: RM2.17 Previous Target: RM2.52 Price Performance Absolute Rel to KLCI 1M 1.7% 2.3% 3M 1.7% 4.2% 12M -8.3% -9.2% Stock Data Issued shares (m) 1,107.0 Mkt cap (RMm)/(US$m) 1577.8/471.5 Avg daily vol - 6mth (m) 1.9 52-wk range (RM) 2.06-3.08 Est free float 50.5% BV per share (RM) 1.4 P/BV (x) 1.7 Net cash/ (debt) (RMm) (3Q14) (19.1) ROE (2014E) 10.7% Derivatives NIL Shariah Compliant Yes Key Shareholders Kim Sim Thai Bee Geok Tan EPF 20.5% 15.2% 5.0% Source: Affin Hwang, Bloomberg Research Team (603) 2145 8158 [email protected] (for further enquiries, please contact Walter Aw; (603) 2145 0403, [email protected]) Source: Company, Affin Hwang estimates Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 1 of 3 10 November 2014 Fig 1: Results Comparison FYE 31 Dec (RMm) 3QFY14 QoQ YoY 9MFY14 YoY Revenue 278.4 % chg 16.9 % chg (2.2) 748.8 % chg (19.9) Op costs (246.2) 19.9 0.2 (650.9) (20.9) EBIT EBIT Margin (%) Int expense Associates EI Pretax profit Tax Tax rate (%) MI Net profit EPS (sen) Core net profit 32.1 (3.1) (17.4) 98.0 (12.5) 11.51 -2.4ppts -2.1ppts 13.1 1.1ppts (2.1) 2.4 0.0 32.4 (4.8) (12.1) 1.0 (6.8) 5.7 26.6 (38.5) 5.8 (49.7) 0.0 0.0 0.0 0.0 0.4 (20.1) 96.8 (17.3) (10.4) 17.3 (16.0) (16.6) 14.8% (0.3) 27.3 4.0 27.3 0 0 16.5 0 93.7 (52.4) (0.8) (20.6) 2.0 (23.8) 80.1 (21.9) 2.0 (23.8) 11.8 (21.9) 2.0 (23.8) 80.1 (21.9) Comment Lower revenue generated qoq due to lower ASPs and lower output production due to on-going automation processes Driven by lower raw material prices especially latex prices EBIT margins expanded due to lower operating costs and better efficiencies Lower profit from associate companies Higher effective tax rate on the back of expiring reinvestment tax allowances Below our and consensus expectations Source: Affin Hwang, Company data Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 2 of 3 10 November 2014 . Equity Rating Structure and Definitions BUY Total return is expected to exceed +15% over a 12-month period TRADING BUY (TR Total return is expected to exceed +15% over a 3-month period due to short-term positive development, but fundamentals are not strong enough to warrant a BUY) Buy call. This is to cater to investors who are willing to take on higher risks ADD Total return is expected to be between 0% to +15% over a 12-month period REDUCE Total return is expected to be between 0% to -15% over a 12-month period TRADING SELL (TR SELL) Total return is expected to exceed -15% over a 3-month period due to short-term negative development, but fundamentals are strong enough to avoid a Sell call. This is to cater to investors who are willing to take on higher risks SELL Total return is expected to be below -15% over a 12-month period NOT RATED Affin Investment Bank does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation OVERWEIGHT Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) (“the Company”) based on sources believed to be reliable. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. Facts, information, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business units within the Company, including investment banking personnel. Reports issued by the Company, are prepared in accordance with the Company’s policies for managing conflicts of interest arising as a result of publication and distribution of investment research reports. 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The Company, is a participant of the Capital Market Development Fund-Bursa Research Scheme, and will receive compensation for the participation. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) A Participating Organisation of Bursa Malaysia Securities Bhd Chulan Tower Branch, 3rd Floor, Chulan Tower, No 3, Jalan Conlay, 50450 Kuala Lumpur. www.affininvestmentbank.com Email : [email protected] Tel : + 603 2143 8668 Fax : + 603 2145 3005 Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 3 of 3