AT a time when the rubber glove industry is expanding with demand still outstripping supply, Supermax Corp Bhd’s move to diversify into another unrelated industry to manufacture contact lenses appears to be quite unconventional.
The company’s founder and president Datuk Seri Stanley Thai said on the sidelines of the Malaysian product launch of this business last week that it needed to tap into an industry that could offer growth.
“We think that in five to 10 years, this would be the prime mover of growth for Supermax.
“Rubber gloves would still be the dominant business but because we are growing from a low base for this, we expect to see exponential growth from the lens business,” Thai says.
Although he sees the new lens business as quite different from the rubber glove one, he notices that it shares some common resources in the form of manpower.
“We have many chemical engineers, chemists and robotic engineers.
“These professions apply to both the lens and glove manufacturing business. Especially with automation going on,” Thai says.
The company which had so far invested some RM100mil in capital expenditure into the business, will pump a further RM150mil into the business in the near future.
This new facility is envisaged to add another 150 million lenses per annum (LPA) capacity to its existing 70 million LPA.
For the time being, Thai says the focus of this new venture initially was not so much to record a profit for shareholders but to build up its market penetration to more countries.
“To do this we will need to spend more on marketing, advertising and promotion activities.
“This will delay the time we will need to actually break even even though we are already at positive cashflow,” he says.
He notes that the next big market it will enter is China.
“It is quite a challenge to penetrate into China but we should be getting the licence to export and sell in China soon,” Thai says.
His contact lens product which is manufactured in Malaysia is already being exported to 65 countries now.
“We would like to grow to be the top 10 producers of contact lenses hopefully within the next 10 years,” he says.
In his speech earlier at the launch of the lenses, he says that his initial studies some five years back showed that the contact lenses industry had profit margins which were very high and could reach 1,000%.
Citing statistics by a third party market research firm Transparency Market Research, Thai says the contact lens industry is envisaged to grow at a steady pace with a compounded annual growth rate of 6.7% until 2024.
He notes that the worldwide size of the contact lens industry is much bigger than the rubber glove industry.
“The global rubber glove industry size is now RM24bil. While the contact lens industry is slightly more than RM48bil (US$12bil) for the forecasted year 2018.
“This is double the size of the glove industry,” Thai says.
Among the growth factors for the lens industry are the rising and ageing population, rising disposable income and the rising prevalence of ophthalmic disorders.
Despite registering a strong growth in its financials, Supermax had seen its shares trading at suppressed levels in terms of price to earnings ratio (PER) for quite some time when compared to its Malaysian rubber glove making peers.
It is trading at a historical price to earnings ratio (PER) of about 19 times and a forward forecasted FY19 PER of 15 times presently.
In FY18, the company had recorded a revenue growth of 15.8% to RM1.30bil while profit after taxes surged by 57.9% to RM110.97mil.
Prior to the 14th General Election (GE14), the company had seen its shares trading at a suppressed level due to certain political statements that was reportedly made by Thai in the run up to the 13th general election in 2013.
Reports in April this year just before the GE14 when Barisan Nasional was still in power had seen Thai maintaining that he did not criticise the government led by then Prime Minister Datuk Seri Najib Razak.
The usually outspoken Thai also issued an apology to Najib just prior to GE14 for his involvement in Malaysian politics.
“With much regret, I realised that I was being influenced by the propaganda and the opposition (then Pakatan Harapan) during the election time and I truly regretted it and realised it was wrong to get involved in politics as a businessman.
“Thus, I hereby tender my apology to Najib for what I have done in GE13,” he was quoted as having said then.
Just after Thai’s apology, Supermax’s then chairman Tan Sri Rafidah Aziz resigned from her position with “personal reasons” being cited for her resignation with reports also saying that she disagreed with his move to apologise to Najib.
All these developments had affected investor sentiment in Supermax and at the same time Thai had seen himself being charged by the Securities Commission and found guilty in November 2017 for insider trading.
He was then handed a jail sentence of five years and fined RM5mil for insider trading, against which he is appealing.
After resigning as its group managing director in November 2017, Thai in August this year had been disqualified as a director at Supermax, the company which he has a majority stake in.
This is due to the insider trading conviction that saw his bid to be reappointed as director being dismissed by the High Court.
The company had understandably seen a surge in its share price and returning investor interest following the results of the GE14 on May 9 which saw Pakatan Harapan coming into power when the local markets reopened for trading on May 14.
It would be interesting to watch the developments at Supermax and see if investor sentiment can improve and help reduce the valuation discount gap between the company and its peers.
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