GLOVE producer Supermax Corporation Bhd gets a thumbs-up from RHB Research on its land acquisition in Kapar, Klang, mainly due to the strategic location of the land, as well as the increase in production over the next five years..
The company had announced on March 13 via a bourse filing that it had purchased a 2ha plot of land from Nishimen Industries. The land is located next to Supermax’s Plant 12 and the purpose of the acquisition is to build Plant 16, with the side-by-side location of the two plants expected to increase operational synergies and efficiency.
Supermax’s plan is to increase its production capacity by 4.5 billion pieces per annum over the next five years.
Demand for gloves has seen a boost from the Covid-19 pandemic, with RHB analyst Alan Lim noting that orders for gloves from China, among others, have increased.
“The group’s utilisation rate has surged to more than 85% from the usual 70-75% in the past. On recent expansion, we gather that the commissioning of new lines at Block A of Plant 12 in Meru, Klang is ongoing. We expect capacity to increase by 800 million pieces per annum, or 3%, after the completion of the remaining three lines at Block A in March 2020,” says Lim.
Lim also noted that Supermax is a beneficiary of the weaker ringgit against the US dollar, considering almost all of its gloves are exported with a 50% to 60% cost in the greenback. The expectation is that for every 0.10 increase in the exchange rate, Supermax’s earnings are expected to increase by 1.8%.
As such, Lim maintains a buy call on Supermax, with a target price of RM1.86, with his forecast earnings for its 2020 to 2022 financial years unchanged, pending more details from the company’s management about the expansion.
“Note that Covid-19 cases are still increasing and this should lead to a structural increase in demand for gloves,” says Lim.
At the noon close, Supermax’s shares were last done at RM1.61, down 10 sen, with 13.4 million shares changing hands. – March 16, 2020
