By Sherilyn Goh
CIMB Research is now increasingly upbeat on the growth prospects of Supermax Corp Bhd, following the resolution of utility issues which have blighted the glovemaker for more than two years, and after finding growth drivers in its Glove City project and contact lens business which have not bode well with several analysts last year.
“We are turning optimistic on its growth prospects given that it has finally resolved the utilities issues and management is confident about stronger growth, driven by the Glove City project and new drivers in contact lenses,” said CIMB Research in its note published today.
The change in sentiments also saw the research house upgrading its call accordingly for Supermax Corp to “add”, with an increased target price of RM5, up from RM2.95 previously, after attending the group’s investor briefing held at its headquarters in Sungai Buloh, Selangor.
To recap, the deployment of Plants 10 and 11 has been delayed for more than two years due to the lack of water and electricity issues. As at December 2015, according to CIMB Research, the combined production capacity for both plants were about 2.2 billion pieces per annum.
“Apart from that, management also shared on the development of its Glove City project in Bukit Kapar, Selangor. This project will include four plants and is expected to sustain the group expansion plan until 2021,” it added.
Each of the four new plants is expected to have an installed capacity of 7.9 billion gloves per annum, with the commissioning of Plant 1 expected to take place in the third quarter of 2017.
CIMB Research also noted that it is impressed with the group’s development in its contact lens division, as the group has reportedly started producing dry lenses for original equipment manufacturer (OEM) business.
It is also targeting to launch its own brand in Malaysia in the second quarter of 2016, capturing the contact lens market which is expected to maintain a growth trajectory between 8% and 9% in coming years.
Despite at a relatively small quantity of between three million and four million pieces per month, CIMB Research pointed out that the group can expect to see healthy revenue contribution of about 10% from the division in financial year 2018.
“We raise our FY16-FY18 earnings per share (EPS) by between 15% and 60%, as we increase our utilisation rate assumption to over 78% from sub-60% previously, as we are (now) more confident with Supermax’ ability to deliver new capacity following the resumption of its Plant 10 and 11 operations.
“We upgrade Supermax to Add from Hold with a higher RM5 target price, based on 18.4 times calendar year 2017 price-earnings (PE), a 20% discount to Hartalega’s target PE of 23 times as we see improving earnings prospects for Supermax on the back of an FY15-FY18 EPS compound annual growth rate of 21%,” it wrote.
At 12.29pm, Supermax is trading 3 sen higher at RM3.42.
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