KUALA LUMPUR: Kenanga research has upgraded Supermax Corp Bhd
to market perform with a higher target price of RM1.50 following the release of the latter's 9M19 earnings results.
"The group is trading at a steep discount of 40% compared to the sector’s average due to its weak earnings guidance and it trailing behind peers in terms of capacity expansion and innovation," said Kenanga in a note.
It said the glove maker's 9M19 core net profit of RM102.2mil, which was 5.1% higher year-on-year beat its expectations but was in line with consensus estimates.
The improvement was underpinned by stronger revenue due to the new replacement lines in the Perak plant while profitability increased due to improved efficiency and productivity.
Moving forward, Kenanga expects the negative pressure on average selling price and profits due to the mild excess supply situation in the sector to rectify itself over the next quarter
"With the rubber gloves players becoming aware of the intense competition since four months ago; over the last few months, they have implemented any of these measures; (i) slowed new
capacity expansion, (ii) more measures to maintain margins, including automation and other cost reduction initiatives, and (iii) intensifying sales efforts to penetrate emerging economies," it said.