Supermax to benefit from weak Ringgit
KUALA LUMPUR: Affin Hwang Capital Research has upgraded glove maker Supermax Corp to a Buy with a higher target price of RM3.40.
It said on Monday Supermax’s share price fell 14% year-to-date as sentiment turned against gloves stocks.
“We think that the correction was overdone, and value has emerged at this juncture. Supermax is trading at 13 times price-to-earnings (PE) FY16, at a significant discount to the sector average of 20 times,” it said.
Given the better earnings visibility, the huge discount should be unwarranted and the research house added there was room for it to narrow.
Affin Hwang raised its earnings forecasts by 10.9% for FY16 and 9.5% for FY17 (1.4% for CY15).
This was based on: (i) higher installed capacity from plants 10 & 11; (ii) higher US dollar assumption at RM3.95 vs RM3.50 earlier; and (iii) better operational efficiencies from newer lines.
“We also raise our target price to RM3.40 at 16 timesPE FY16 (from 12 times), and a 10% discount to the long-term KLCI average of 18x. Upgrade to Buy on valuations,” it said.
Affin Hwang said Supermax is scheduled to release its 4QCY15 results in the last week of February.
It was expecting a strong set of results due to higher installed capacity as the two long-delayed new rubber gloves plants (Plants 10 & 11) in Klang have finally been commissioned.
“We understand that eight double-former lines are currently in operation with an installed capacity of approximately 2.2 billion pieces per annum catering for nitrile gloves. Separately, the remaining 12 lines, which have additional capacity of 3.3 billion pieces per annum, are slated for full commissioning by 1HCY16.
“The development is positive as Supermax has been a laggard for most of 2014/15 as poor execution of its expansion plans has put a dampener on investor sentiment.
“Supermax has been trading at depressed valuations and a steep discount to the sector average throughout 2015 due to the many delays and uncertainties. We believe that the commissioning of Plant 10 & 11 will provide a positive boost to earnings growth and its stock performance,” said the research house.
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