Supermax Corporation Bhd

WE like Supermax (Fundamental: 1.0/3, Valuation: 0.8/3) for its comparatively undemanding valuations and growth potential. The stock is trading at a trailing 12-month PE of 13.4 times, compared to its prospective growth of 15%.

It operates in a fairly defensive sector (and is a good proxy for the healthcare industry) with steady global demand growth expectations.

About 70% of Supermax’s gloves are sold under its own brands (OBM), which command higher profit margins than original equipment manufacturers (OEM). At end-2014, the company has a total installed capacity of over 18 billion pieces per annum.

Supermax was first recommended by InsiderAsia on October 24, 2014. The stock rose as much as 6.2% to RM2.36, before slumping to a low of RM1.57 following allegations of insider trading by its Chairman and Managing Director Datuk Seri Stanley Thai and Executive Director Datin Seri Cheryl Tan. The stock has since recovered somewhat, to the current price of RM2.02.

Charges by the Securities Commission involved insider trading related to transactions in APL Industries Bhd (APLI), an associate of Supermax, back in 2007. Both claimed trial to the charges.

Importantly, Supermax’s business operations are not related to the allegations.

To be sure, earnings have been range bound for the past few years, due to various factors such as intense competition and rising costs. Lower profit in 2014 was due, mainly, to start-up costs and teething problems at its two new plants in Meru, Klang.

Once resolved though, the capacity expansion — for an additional 6.9 billion pieces of nitrile gloves per annum — will drive earnings growth over the next two years. Nitrile gloves will then account for 53% of the company’s total installed capacity.

Notably, sales jumped 34.6% y-o-y to RM258.8 million in 4Q2014 with production having fully recovered from fire at one of its plants in 4Q2013.

This article first appeared in The Edge Financial Daily, on July 10, 2015.