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 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.