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CIMB Research views glove maker Supermax as undervalued
KUALA LUMPUR: CIMB Equities Research views glove maker Supermax as undervalued and is retaining its target price of RM2.90, which is 24.3% above the last traded price of RM2.33.
It said on Wednesday Supermax’s fundamentals remain intact with strong demand and resilient selling prices.
“The company is facing capacity constraints and the bulk of its earnings growth this year hinges on whether the company can get its plants up and running as soon as possible.
We maintain our FY14-16 EPS forecasts and target price, based on 12.4 times CY15 price-to-earnings (P/E) which is at a 30% discount to Hartalega’s P/E. Our Add rating is retained. High utilisation rate of its new capacity is a key potential catalyst,” it said.
CIMB Research said Supermax’s presentation during the Invest Malaysia conference drew close to 50 fund managers and analysts. The presentation focused on the competitiveness of the industry.
Due to the influx of nitrile capacity, Supermax is of the view that maintaining reasonable selling prices is of the utmost importance in remaining competitive in the industry.
Passing on cost is not as easy as before. Higher operating cost in the country has narrowed the competitive gap between Malaysia and the countries nearby, especially China, which are also going into the nitrile business aggressively.
The research house said nonetheless, the demand for its products continues to be strong with little downward pricing pressure. Given its high utilisation rate, the company does not see issues in filling up the new capacity this year. Its new plants, Lots 6058 and 6059 are on track for completion in September-October 2014. Supermax will have a total capacity of about 23 billion gloves by year-end.
“Supermax’s price resilience comes from its reasonable pricing and strong own brand manufacturing network, which is lacking in its peers. Given its long oversold position of more than 60 days, we believe that its new capacity from Lots 6058-59 will be filled.
“While we believe that 1H14 may be slow due to capacity constraints, 4Q should be stronger as new capacity comes on stream. Supermax is trading at only 10 times CY15 P/E, which is at a 25% discount to the sector average. At this level, we believe that its share price has factored in its foreseeable risks. About 70% of its sales are generated from own brand manufacturing which we believe commands some brand value,” said CIMB Research.
Source: The Star