Can Supermax Corporation Bhd Be Super Again?

Established in 1987, Supermax Corporation Bhd (Supermax) is presently one of the largest manufacturers of rubber gloves in Malaysia. As at 15 February 2019, it is valued at RM 2.22 billion in market capitalization. In this article, I would be sharing its latest financial results, its growth strategies and evaluate it based on its current stock price of RM 1.63 a share. Thus, here are 12 key things to know about Supermax before you invest.

1. Production Capacity
   Supermax had achieved CAGR of 5.17% in Production Capacity over the last 10 years. It grown from having 8 plants with production capacity of 14.5 billion pieces of gloves per annum in 2008 to 11 plants with a total production capacity of about 24.0 billion pieces per annum in 2018.
   
   
   
2. Key Export Markets
   Supermax exports its products to over 160 countries worldwide. Its key export markets are America, Europe, and the Asia Pacific region. Here, I would provide its geographical sales breakdown for 2018:
   
   
   

Source: Supermax’s Annual Report 2018

1. Revenue
   Revenues have grown by CAGR of 4.86% from RM 811.8 million in 2008 to RM 1.30 billion in 2018. It is relatively slow when we compared to its peers such as Hartalega, Top Glove, Kossan, and Riverstone for the past 10 years. This is because its peers have grown their production capacity more aggressively during the period.
   
   
   

Source: Supermax’s Annual Reports 2018

1. Profitability
   Supermax has maintained shareholders’ earnings at RM 100 million per year over the last 10 years. This is despite having achieved sales growth during the period. The drop in earnings was mainly due to a continuous fall in profits from its associate companies which include 50% stakes in:
   
   – Supermax Brasil Importadora S/A
   – Supermax Europe NC/SA
   – Supermax Canada Inc.
   
   
   Supermax has 10-Year Return on Equity (ROE) average of 13.95% a year. It means it made RM 13.95 in annual earnings from every RM 100.00 in shareholders’ equity from 2008 to 2018.  
   
   

Source: Supermax’s Annual Reports 2018

1. Cash Flow Management
   From 2008 to 2018, Supermax had brought in a total of RM 1.28 billion in operating cash flows. Out of which, it has paid:  
   
   – RM 853.3 million in capital expenditures (CAPEX).
   – RM 105.9 million in net long-term borrowings.
   – RM 325.5 million in dividends to its shareholders.
   
   
   
   

Source: Supermax’s Annual Reports 2018

It has maintained its cash balance at RM 100 – 150 million levels for the past 9 years since 2009. Thus, Supermax has proven itself to be capable of generating cash flow and sustaining dividend payouts to its investors for the long-term.

1. Latest 12-Month Results
   For the last 12 months (Q3 2018 – Q2 2019), Supermax has generated a total of RM 1.41 billion in revenues and RM 117.3 million in earnings or earnings per share (EPS) of 8.62 sen.
   
   
   

Source: Supermax’s Quarterly Reports

1. Balance Sheet Strength
   As at 31 December 2018, Supermax has reported non-current liabilities of RM 106.2 million and shareholders’ equity of RM 1.09 billion. Hence, its gearing ratio is 9.78%, the lowest in 10 years. Also, it has reported to have current assets valued at RM 659.1 million and current liabilities of RM 626.3 million. Hence, its current ratio is 1.05. It indicates Supermax has the capability of funding its working capital and fulfil its short-term financial obligations over the next 12 months.
   
   

1. Growth Plan #1: Expansion in Rubber Glove Productions
   Presently, Supermax has a production capacity of about 24.0 billion per annum. It targets to expand its capacity by another 20% in the next two years with the construction of Plant 12 at Meru, Klang. Meanwhile, it is also working to revamp its existing 11 plants by replacing old machines with new ones which are hi-tech and more efficient. Supermax budgets RM 300 million for the above expansion plans.
   
   
   
2. Growth Plan #2: Updates for Contact Lens Manufacturing
   Supermax is the first contact lens manufacturer in Malaysia. It obtained the product license to export its contact lenses to Japan in June 2018, a key importer of contact lens of the world. Soon after, it has launched its brand of contact lenses, Aveo, locally in Malaysia in October 2018.
   
   
   
3. P/E Ratio
   As at 15 February 2019, Supermax is trading at RM 1.63 a share. Hence, its current P/E Ratio is 18.91, higher than its 10-Year Average of 13.74.
   
   
   

1. P/B Ratio
   As at 31 December 2018, Supermax has recorded net assets of RM 1.60 a share. Thus, its current P/B Ratio is 1.01, below its 10-Year Average of 1.71.
   
   
   

1. Dividend Yields
   On 7 January 2019, Supermax has issued 1 bonus share for every single existing ordinary shares. Hence, according to its new number of shares, Supermax’s dividends per share (DPS) for 2018 is 4.0 sen.
   
   If Supermax is able to maintain annual DPS at 4.0 sen, its dividend yield is 2.45% per year, below 3% interest rate from fixed deposits offered by most local banks in Malaysia.
   
   
   

VIA’s Verdict

Supermax has grown at a slower rate when compared to its peers in the rubber glove industry such as Hartalega, Top Glove, Kossan, and Riverstone. Evidently, I found that its peers had achieved continuous growth in profits over the past 10 years, thus, indicating that Supermax’s results were not on par with its peers in the period.

In terms of its valuations, Supermax is trading at P/E Ratio of 18.91, P/B Ratio of 1.01 and offers a dividend yield of 2.45% per year. Are they attractive to you?

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