CIMB Research lowers Supermax to hold after weaker earnings


CIMB Research expects higher expenses from the contact lens segment given that Spermax plans to spend more on A&P.

CIMB Research expects higher expenses from the contact lens segment given that Spermax plans to spend more on A&P.

KUALA LUMPUR: CIMB Equities Research has downgraded glove maker Supermax Corporation to hold from add with a lower target price of RM3.84 from RM4.53 earlier.

It said on Thursday the net profit for the financial year ended June 30, 2018 of RM107mil was well below its and consensus estimates.

“This is due to weaker-than-expected 4QFY18 net profit of RM9.8mil (-70.5% on-quarter) from: i) higher operating expenses, ii) spike in tax rates, and iii) unrealised forex losses,” it said.

Supermax has proposed a one-for-one bonus issue that would potentially double its share base to 1.4 billion. This exercise is expected to be completed by the fourth quarter.

“We cut our FY19-20F EPS by 11.5%-19.5% to account for: i) higher overall expenses, especially in the contact lens segment, and ii) increase in tax rates,” it said.

Despite higher revenue growth of 0.7% on-quarter, Supermax’s Q4 net profit fell  to RM9.8mil (-70.5% on-quarter). 

On a full-year basis, FY18 revenue rose 15.8% on-year, driven by an uptick in sales volume with full contributions from Plants 10 and 11 and higher average selling prices (ASPs).

“Given the weaker-than-expected 4QFY18 net profit, we lower our FY19-20F EPS estimates by 11.5-19.5%. 

“This is to account for: i) increase in overall operating expenses, especially in the contact lens segment, ii) higher tax rates, and iii) lower associate contribution. 

“Note that we are expecting higher expenses from the contact lens segment given that Spermax plans to spend more on advertisement and promotional activities (A&P) to grow this segment faster. We also introduce our FY21F EPS estimates,” it said.