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Sunday, November 1, 2009

Supermax Counter Is The Cheapest Among All The Glove Companies in KLSE!!!

By: Koay Wan Fing

The only industry that Malaysia can be proud of is the glove industry. Malaysia supplies 65 % of the world’s glove and produces the best quality gloves in the world. Supermax is the second largest glove manufacturer in Malaysia after Topglove. Its current installed capacity is 14.5 billion pieces of gloves. It will add another 3.16 billion pieces by the first quarter of 2010 by building 12 new production lines at the existing plants in Klang next month.To cater for the strong demand for glove usage in the world, it will produce another 4.15 billion pieces by the end of 2010. Thus, the total installed capacity will be increased to 21.75 billion pieces by the end of 2010.This amounts to an increase of about 50% over the current installed capacity!

Supermax made a net profit of RM40mil in the third quarter of 2009. I believe that the earnings in the fourth quarter of this year will be the same or even better than the third quarter as its gloves are all booked (sold) up to February next year. Thus the net profit for this year will most likely be about RM125m which can be translated into an EPS of 47 cents. At the current price of RM3.60, Its P.E is 7.7x while the average PER of all its peers is 12x. By using a PER of 12x, Supermax share price should be RM5.64!!

Supermax is in a recession proof industry. The outbreak of H1N1 flu, bird flu and SARS leads to an increasing public awareness of the importance of using gloves for hygienic purposes. The glove industry is growing at 10% or more annually and this trend will continue. Since closing down its failed venture in APLI at the end of last year, Supermax has carried out its restructuring or upgrading its production efficiency, its inventory level and receivable management (cutting down the payment period for gloves sold). As Supermax is going to add new production lines to increase the installed capacity by 50%, I see no reason why Supermax shares would be trading at a PER of 7.7x as compared with its peers which has an average PER of 12x (a whopping 50 % discount to its peers). Therefore, Supermax should be trading at a much higher level in the coming months than the current price of RM3.60.

Relative valuations among the 4 biggest glove manufacturers (at current level)

1. Top Glove (RM8.10):
Share Capital: 304.5mil
Installed Capacity: 31.5bil
Net Profit 2009: RM186mil
EPS 2009: 61.1 sen
Market Cap: RM2.515bil
PER 2009: 13.5x

2. Supermax (RM3.60):
Share Capital: 265.3mil
Installed Capacity: 14.5bil
Net Profit 2009: RM125mil
EPS 2009: 47 sen
Market Cap: RM0.955bil
PER 2009: 7.7x

3. Kossan (RM5.00):
Share Capital: 160mil
Installed Capacity: 11.1bil
Net Profit 2009: RM75mil
EPS 2009: 47 sen
Market Cap: RM0.816bil
PER 2009: 10.6x

4. Hartalega (RM5.20):
Share Capital: 242.3mil
Installed Capacity: 6.2bil
Net Profit 2009: RM102mil
EPS 2009: 42 sen
Market Cap: RM1.26bil
PER 2009: 12.4x

Thus from the above data, we can see that Supermax (at the price of RM3.60) is still the cheapest glove counter in the KLSE. An added bonus to Supermax is the announcement by its CEO that there will be an increase in dividend payment as well as a special dividend next year. Happy investing!

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

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