Supermax’s 9MFY14 results below expectations

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Supermax Corp Bhd
(Nov 10, RM2.17)
Maintain “neutral” with a lower target price (TP) of RM2.16 from RM2.31:
The nine months of financial year 2014 (9MFY14) earnings of Supermax came in below expectations, which we believe was mainly due to lower production capacity and a challenging operating environment.We revise our earnings forecast as we believe the company may need more time to fully commission its production lines. We maintain our “neutral” stance on Supermax with a revised TP of RM2.16 from RM2.31 (12 times FY15 price-earnings ratio [PER], 7.3% downside).

Supermax’s 9MFY14 net profit of RM81.2 million (a decrease of 21% year-on-year) fell short of expectations, meeting only 63% or 65% of our consensus full-year estimates. This was partly attributed to the output loss at one of its plants in Alor Gajah, Malacca, which faced a production issue in the fourth quarter of financial year 2013 (4QFY13). The problem was only fully resolved in stages towards end of 2QFY14.  We believe average selling prices (ASPs) have continued to trend down across the company’s range of products, in tandem with lower raw material prices coupled with price competition in the market.

Supermax declared a 2 sen interim dividend for the quarter under review (cumulative 5 sen for 9MFY14). We expect FY14 earnings to be dragged by its first half of financial year 2014 results.

Maintain “neutral”. Following the downward revision in our FY14 and FY15 earnings forecasts, we lower our TP to RM2.16 (from RM2.31), implying a 7.3% downside.

Our TP is pegged to a 12 times FY15 PER (rolled over from FY14 PER), which is the mean of its historical trading band.

We understand that the management is organising an analyst briefing soon. — RHB Research Institute, Nov 10

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This article first appeared in The Edge Financial Daily, on November 11, 2014.