Company Spotlight on Supermax Corporation Berhad (7106)

By Stella Goh – Market Data Analyst | 27 March 2020

Overview 

Supermax Corporation Berhad (SUPERMX) is an established Malaysia-based investment holding company founded by Dato Seri Stanley Thai and his wife Datin Seri Cheryl in 1987 and is headquartered in Sungai Buloh, Selangor. SUPERMX is primarily involved as a manufacturer, distributor and marketer of high-quality medical gloves. 

SUPERMX was listed on Bursa Malaysia Main Market on 4 August 2000. The company produces up to 24 billion pieces of gloves per year, meeting approximately 12% of the world’s demand for latex examination gloves. Currently SUPERMX has 12 manufacturing plants based in Malaysia equipped with state-of-the-art machinery, energy savings biomass system and a research and development centre.  

Business Model 

SUPERMX produces various types of natural rubber and nitrile latex gloves to over 165 countries such as the USA, European Union, Middle East, Asia and South Pacific countries. The company is also involved in trading of latex gloves, generation of biomass energy, trading and marketing of healthcare products, medical devices and property holdings activities. 

As Malaysia’s very first home-grown contact lens manufacturing company, SUPERMX has obtained the necessary license and approvals to export its products to over 60 markets globally, including the USA and Japan markets which are two of the largest contact lens market presently. The contact lens brand, namely AVEO is distributed via its own global distribution network located in 8 countries, through joint ventures and appointment of authorized dealers in over 50 other countries as well as via e-commerce online sites available in three countries such as USA, Malaysia and UK. The brands owned by SUPERMX such as Supermax, Aurelia and Maxter are trusted and recognized by laboratories, hospitals, pharmacists, doctors and surgeons around the world. (Source: Annual Report 2019) 

Financial Review

SUPERMX has achieved a revenue growth of 17.92% from RM1.304 million in FY2018 to RM1.538 million in FY2019. Based on 3 years of CAGR basis, SUPERMX has a revenue growth of 14.19%. 

The increase in revenue was attributed on the back of increased of volume production arising from its ongoing rebuilding and replacement program as well as the ongoing efforts to fine-tuning and boost operational efficiency and production capacity. The commendable performance was achieved in the face of challenges such as uncertainties caused by the on-going US-China trade war and Brexit, high volatility in raw material costs and increased competition in the global marketplace. Nevertheless, the company is committed to continue working towards maximizing the company’s performance and stakeholders’ interest and values. (Source: Annual Report 2019) 

SUPERMX has recorded a RM70.793 million increase in gross profit, translating to a growth of 17.81% from RM397.523 million in FY2018 to RM468.316 million in FY2019. Based on 3 years CAGR, the company’s gross profit has grown 8.48%. 

The rise in gross profit was due to the increased output from newly commissioned lines at the company’s Perak plant under its rebuilding and replacement program, higher average selling prices (ASP) in response to higher raw material prices, a stronger dollar over the course of the year and resilient global demand for the medical gloves. (Source: Annual Report 2019) 

The Profit After Tax (PAT) rose 11.77% from RM110.142 million in FY2018 to RM123.103 million in FY2019. Based on 3 years CAGR basis, the Profit After Tax (PAT) grew by 8.64% which was in line with the growth in revenue and gross profit.

Cash Flow Statement 

The net cash from operating activities has provided a positive cash flow of RM235.053 million in FY2019 as compared to RM177.188 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion. 

The net cash from investing activities in FY2019 (-RM112.248 million) was mainly due to the purchase of Property, Plant and Equipment (PPE) (RM112.248 million). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2019) 

The net cash from financing activities in FY2019 (-RM103.973 million) was mainly due to dividend paid (RM32.783 million), repayment of short term borrowings (RM22.322 million), repayment of term loans (RM22.068 million), interest paid (RM19.708 million), purchase of treasury shares (RM7.710 million) and repayment of finance lease payables (RM0.234 million). 

Is the company able to pay back its liabilities? 

Based on the liquidity ratio calculation, SUPERMX has a current ratio of 1.056 times in FY2019 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities (RM601.868 million) if any unforeseeable circumstances occur. SUPERMX is able to do so by using current assets such as inventories, receivables, tax assets, amounts owing by subsidiaries, amounts owing by associates, cash and bank balances amounting to RM635.712 million. 

Prospect and Challenges 

SUPERMX’s wholly owned subsidiary Maxter Glove Manufacturing Sdn Bhd has entered a RM20 million sale and purchase agreement (S&P) with Nishimen Industries (M) Sdn Bhd to acquire the industrial land measuring 16,654 square metres in Kapar. (Source: TheStar, 13 March 2020). The proposed acquisition was for future expansion of it’s manufacturing capacity in a strategic location near its existing cluster of manufacturing plants (Plant No.12), which will facilitate the management control, operational synergies and efficiency. (Source: The Edge Markets, 13 March 2020) 

Towards end of 2019, the company has completed the acquisition of land in Meru, Klang on which it plans to build Plant #13, #14 and #15 that will contribute another 13.2 billion pieces of gloves to the group’s installed capacity over the next five years up to year 2024.  (Source: The Malaysian Reserve, 26 February 2020). SUPERMX also plans to build a new manufacturing plant (Plant 16th) over the next few years, which will increase the production capacity by about 4.5 billion pieces per year. (Source: TheStar, 13 March 2020) 

For the contact lens business, the revenue is on the rise as SUPERMX continues to spend on advertising and promotions and managed its costs well. Even though this venture on the whole is not quite contributing to the company’s performance yet, it is becoming less of a strain on its performance which is positive for the company. SUPERMX will continue to work to obtain all the necessary licenses and approvals in order to export the products to more countries across the world. The company has spent over RM100 million to-date on this venture and remains optimistic and confident that over the medium to long term, it is building a business that will be value enhancing to all stakeholders. (Source: Annual Report 2019) 

Rating System

Return on Equity (ROE) = Average 

Revenue [3 years CAGR] = Average 

Net Earnings [3 years CAGR] = Average 

Basic Earnings per Share (EPS) [3 years CAGR] = Average 

Interest Coverage = Average 

Quality of Earnings = Average 

Insight 

Based on the calculation of Discounted Earnings Model, SUPERMX has an intrinsic value of RM1.873. The current share price of SUPERMX is RM1.57 which makes it at a fair value stock (as at 26 March 2020). SUPERMX has a beta of 1.001 (500 days) indicating that the share price is more volatile than current market. Based on the computation of Compound Annual Growth Rate (CAGR), SUPERMX has an expected market return of 0.43%.

In conclusion, SUPERMX has achieved a strong performance in FY2019 with the highest revenue, gross profit and profit after tax over the past 3 years. The company’s prospect remains bright as the company continues to expand its manufacturing capacity via acquisition, which enables the company to grow its business to ultimately accrue long-term benefits. The demand growth is expected to continue particularly in the near-term given the ongoing COVID-19 outbreak across the globe. 

Disclaimers 

The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentionalIt would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 

Company Spotlight on Teo Seng Capital Berhad (7252)

By Stella Goh – Market Data Analyst | 13 March 2020

Overview 

Teo Seng Capital Berhad (TEOSENG) is an investment holding company founded in 2006. It is primarily involved in layer farming (the rearing of chickens for eggs production) but has over the years expanded its products and services to include five main categories ie chicken eggs, animal feeds, paper egg trays, organic fermented fertiliser and animal health products. Of the above products, old chickens and manure are by-products of Teo Seng’s layer farming operations. 

TEOSENG was initially listed in Bursa’s ACE Market on October 2008 and later transferred to Bursa’s Main Board on August 2009. Over the years, the company has expanded significantly and aggressively from a small farm operation with daily production of 100,000 eggs to its current capacity of 3.50 million eggs per day. All its 25 farms are in Johor operating on the All-In-All-Out (AIAO) system and Closed-House system. These systems are the most internationally recognized systems in layer farming industry which provides advantages in terms of biosecurity and productivity. The company exports approximately 40% of eggs to overseas, mainly to Singapore (30%) and Hong Kong. (Source: Annual Report 2018) 

Business Model 

TEOSENG’s core business activities principally involved in the production of eggs, manufacturing and trading of paper egg trays for both internal and external sale, production of animal feeds mainly for own layer farming activities as well as production of organic fertilizers by using chicken manure. 

The company also specializes in healthcare solutions as the animal health products are essential for growth of livestock and they can be divided into two categories, namely Farm Animal Products and Companion Animal Products. Some examples include anti-parasite, antibiotics, disinfectants, equipment, feed additives, herbal solutions, pesticides, supplements, vaccine and pet food. Thus, TEOSENG in having its own animal health product division enables it to enjoy priority in terms of product supply and knowledge. 

Financial Review 

TEOSENG has achieved a revenue growth of 15.58% from RM424.209 million in FY2017 to RM490.285 million in FY2018. Based on past 5 years of CAGR, the revenue growth was 8.19%.  

The increase in revenue was due to the higher sales from both its poultry farming business as well as its investment and trading business as the results of upgrading farm infrastructure and facilities brought increased production efficiency. (Source: 4th Quarterly Results 2018) 

TEOSENG has recorded a RM32.613 million increase in gross profit, translating to a growth of 53.49% from RM60.971 million in FY2017 to RM93.584 million in FY2018. Based on 5 years CAGR, the company’s gross profit has grown 9.69%.  

The increase in gross profit was due to the lower cost of feeds, continuous growth in sales of eggs as well as the positive results brought about by the upgrading of farm infrastructure and facilities for better production efficiency. TEOSENG’s brand of premium eggs known as Omega Lutein, enhanced for buyers who require a higher degree of nutrition has been growing in sales and now contributes 2% of the sales volume. Meanwhile, the company’s investment and trading business saw higher gross profit on the back of increasing demand of the existing and new animal health products. 

The Profit After Tax (PAT) rose 778.41% from RM3.460 million in FY2017 to RM30.393 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 5.39% which was in line with the growth in revenue and gross profit. 

Cash Flow Statement 

The net cash from operating activities has provided a positive cash flow of RM64.825 million in FY2018 as compared to RM6.338 million in FY2017 indicating that the company is healthy and has enough cash to use for business expansion. 

The net cash from investing activities in FY2018 (-RM28.089 million) was mainly due to the purchase of property, plant and equipment (PPE). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2018) 

The net cash from financing activities in FY2018 (-RM27.832 million) was mainly due to the repayment of hire purchase payables (RM9.377 million), repayment of term loans (RM9.246 million), net movements in banker’s acceptances (RM9.220 million), interest paid (RM8.310 million) and dividend paid (RM1.499 million). 

Is the company able to pay back its liabilities? 

Based on liquidity ratio calculation, TEOSENG has a current ratio of 1.101 times in FY2018 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities (RM185.837 million) if any unforeseeable circumstances occur. TEOSENG is able to do so by using current assets such as biological assets, inventories, trade & other receivables, tax recoverable, cash and bank balances amounting to RM204.612 million. 

Prospect and Challenges 

TEOSENG has signed a memorandum of agreement (MoA) with Solarvest Holdings Berhad to install solar photovoltaic panels (PV) across all its chicken farms and factories. The company said it has earmarked approximately RM13 million for the installations which involve about 4,000 kilowatt-peak (kWp) of electricity output. This renewable energy generated will be used for the daily operations of its facilities and is expected to generate savings to its electricity costs and will positively contribute to the global environment conservation efforts. The move is in line with TEOSENG’s environmental sustainability goals and supports the government’s green energy ambition. (Source: theedgemarkets.com, 21 November 2019) 

Despite unforeseeable circumstances such as egg price in Peninsular Malaysia experienced prolonged unattractive market consolidation due to local oversupply situation in the year, the company is confident that they are well-equipped with all the necessary human capital to resolve the issues. TEOSENG is focusing on sustainable earnings growth through continuous innovation and passionate advocacy of their brand, achieving operational excellence and further developing their HR talents and corporate culture. Farm improvements and expansion was always a top priority as it represents the core business for the company. (Source: Annual Report 2018) 

The company also is looking to expand its business overseas and is sourcing for the right partners to ensure a seamless entry into new markets by establishing market strategies to capture more market share in both domestic and overseas markets as well as growing their product range to meet the customers’ demand. (Source: Annual Report 2018) 

Rating System 

Return on Equity (ROE) = Average 

Revenue [5 years CAGR] = Average 

Net Earnings [5 years CAGR] = Average 

Basic Earnings per Share (EPS) [5 years CAGR] = Average 

Interest Coverage = Average 

Quality of Earnings = Average 

Insight 

Based on the calculation of Discounted Earnings Model, TEOSENG has an intrinsic value of RM5.844. The current share price of TEOSENG is RM0.94 which makes it an undervalued stock (as at 12 March 2020). TEOSENG has a beta of 0.958 (500 days) indicating that the share price is less volatile than the current market. Based on the computation of Compound Annual Growth Rate (CAGR), TEOSENG has an expected market return of 4.46%.

In my opinion, TEOSENG’s prospect remains bright due to its active innovation, investment in cost-cutting technology and passionate advocacy of their brands. Despite the local’s eggs oversupply situation the company still able to deliver growth performance in its revenue, gross profit and profit after tax as compared to the results in FY2017. The Return on Equity has also improved from 1.391 times in FY2017 to 10.940 times in FY2018. I believe the company has potential to achieve outstanding performance in the future. 

Disclaimer 

The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 

Company Spotlight on Hartalega Holdings Berhad (5168)

By Stella Goh – Market Data Analyst | 6 March 2020  

Overview

Hartalega Holdings Berhad (HARTA) is an established Malaysia-based investment holding company founded by Kuan Kam Hon and is headquartered in Kuala Lumpur. HARTA is primarily involved in the business of producing latex and nitrile gloves. It has grown to be the world’s largest nitrile glove producer with the capability of manufacturing 34 billion gloves per year and with plans to progressively expand to 44.7 billion gloves in 2020.

HARTA was listed on Bursa Malaysia’s Main Market on 17 April 2008. The group has continued the technological innovations that help to ensure their gloves are manufactured with equal emphasis on efficiency and quality, a key reason why they are trusted as the Original Equipment Manufacturer (OEM) for some of the world’s biggest brands.

The company has a workforce of 7,800 people based in 8 dedicated manufacturing facilities. It has won many prestigious accolades in both local and international front. The latest was in 2019 for Gold in Export Excellence, Exporter of The Year and The Edge Billion Ringgit Club Corporate Awards. It has also received recognition from Forbes Asia, KPMG and Asia Money.

Business Model

HARTA provides a comprehensive range of products known for its superior quality and critical protection. Examples include nitrile gloves, latex gloves, surgical gloves and laboratory gloves.

As the most automated glove production company, its automated process not only improves efficiency but also eliminates product contamination resulting from human contact. HARTA produces soft stretchy nitrile gloves that emulate the properties of natural rubber latex. The nitrile gloves also eliminate the chances of protein allergy risks that are usually associated with rubber latex.

All gloves produced by HARTA are purchased by healthcare practitioners, food processing workers, lab workers and other professionals. Presently, HARTA’s export markets span across North America, Europe, Asia Pacific, Africa, Russia and Middle East.

Financial Review

Based on past 5 financial years’ revenue chart above, its revenue grew year-on-year (y-o-y) from FY2015 (+3.51%), FY2016 (+30.75%), FY2017 (+21.59%), FY2018 (+32.04%) to FY2019 (+17.52%). On a CAGR basis, HARTA has grown 20.62% based on 5 years. The group’s strong revenue was achieved on the back of improved sales volume which grew by 10.1% year-on-year to 28 billion pieces of gloves. The US and European Union remain key export markets accounting for 54% and 25% of their total exports respectively. (Source: Annual Report 2019)

HARTA has recorded a RM93.441 million increase in gross profit, translating to a growth of 15.20% from RM614.762 million in FY2018 to RM708.203 million in FY2019. Based on 5 years CAGR basis, the gross profit has grown 13.99%.

The increase in gross profit for HARTA was supported by increased contribution from the United States and Europe in tandem with the growing global demand for nitrile gloves. The group was well-positioned to meet this demand growth given their continuous expansion in production capacity via their Next Generation Integrated Glove Manufacturing Complex (NGC). (Source: Annual Report 2019).

The Profit After Tax (PAT) of HARTA rose 3.48% from RM439.632 million in FY2018 to RM454.938 million in FY2019. On a CAGR basis, the Profit After Tax (PAT) grew by 14.29% which was in line with the growth in revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has provided a positive cash flow of RM627.399 million in FY2019 as compared to RM403.949 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion.

The net cash from investing activities in FY2019 (-RM428.602 million) was mainly due to the additions to capital work-in-progress (RM398.412 million), additions to Property, Plant and Equipment (PPE) (RM33.057 million) and additions to intangible assets (RM1.459 million). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2019)

The net cash from financing activities in FY2019 (-RM206.644 million) was mainly due to dividend paid (RM286.177 million) and interest paid (RM10.620 million).

Is the company able to pay back its liabilities?

Based on liquidity ratio calculation, HARTA has a current ratio of 2.179 times in FY2019 indicating that the company does not face any liquidity issues as it is capable of paying back its liabilities (411.889 million) if any unforeseeable circumstances occur. HARTA is able to do so by using current assets such as inventories, trade & other receivables, tax assets, cash, bank balances and short-term investments amounting to RM897.442 million.

Prospect and Challenges

HARTA has allocated RM630 million for Plant 6 and Plant 7 at their Next Generation integrated Glove Manufacturing Complex (NGC) in Sepang as well as RM115 million to integrate the Industry 4.0 technologies for all activities related to gloves production and manufacturing by connecting to computers for data analytics and artificial intelligence (AI). (Source: New Straits Times, 26 July 2019)

HARTA said the NGC Plant 5 was fully commissioned during the quarter while first line of Plant 6 was expected to begin commissioning in Q1 2020 with annual installed capacity of 4.7 billion pieces. For Plant 7, which has commenced construction, would cater to small orders focusing more on specialty products with an annual installed capacity of 3.4 billion pieces. (Source: New Straits Times, 5 November 2019). According to managing director Kuan Mun Leong, the company’s annual installed capacity allows it to ramp up the output from the current 36.6 billion pieces of gloves to 44.7 billion pieces per annum by FY2022. (Source: The Malaysian Reserve, 7 August 2019)

HARTA has launched the world’s first non-leaching antimicrobial glove (AMG) in United Kingdom.  The unprecedented innovation provides active protection against healthcare-associated infections (HAIs). The antimicrobial glove is developed in collaboration with antimicrobial Research and Development (R&D) company Chemical Intelligence UK, which has built-in antimicrobial technology proven to kill micro-organisms in order to prevent the spread of infections. This product is set to be available in hospitals around the world and is being produced at a lower cost in order to reduce the barriers to access. With this technology, the bacteria coming into contact will be exposed to the antimicrobial activity, which in independent testing, achieved up to a 5-log (99.999 per cent) kill rate within just 5 minutes of contact. (Source: New Straits Times, 7 June 2018)

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Average

Basic Earnings per Share (EPS) [5 years CAGR] = Average

Interest Coverage = Good

Quality of Earnings = Average

Insight

Based on the calculation of Discounted Earnings Model, HARTA has an intrinsic value of RM14.126. The current share price of HARTA is RM6.23 which makes it an undervalued stock (as at 5 March 2020). HARTA has a beta of 0.719 (500 days) indicating that the share price is less volatile than the current market. Based on the computation of Compound Annual Growth Rate (CAGR), HARTA has an expected market return of 4.93%.

In conclusion, HARTA has achieved a strong performance in FY2019 with the highest revenue, gross profit and profit after tax over the past 5 years. Its prospect remains bright as the expansion of Next Generation Integrated Glove Manufacturing Complex (NGC) is set to increase capacity from RM36.6 billion to RM44.7 billion pieces of gloves per annum by FY2022 boosted by the adoption of Industry 4.0 technologies, Internet of Things and integrated manufacturing operations. The demand growth is expected to continue particularly in the near-term given the ongoing COVID-19 outbreak across the globe.

Disclaimers

The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.