Supermx broke above its downtrend line

The recent announcement by Supermax Corporation Bhd ('Supermx') to cut further investment in APL Industries Bhd ('APLI'), has led to the cancellation of APLI's proposed rights issue. With this, APLI's restructuring exercise has been terminated. APLI has been suspended as at today, pending its de-listing from the Exchange.

Supermx had acquired a 14%-stake in APLI in 2005 in order to grow its rubber glove business. In addition, it had also acquired a 23%-stake in Seal Polymer Industries Bhd ('Seal'), which has subsequently been turned into a subsidiary of Supermx. The growth by acquisition pursued by Supermx has proven to be more problematic than the organic growth approach adopted by its rivals, Topglove & Kossan. With the successful integration of Seal into the group in 2006 & the recent decision to terminate all efforts to restructure APLI, Supermx's management will be free from distraction & turn its attention to managing its business.

Despite the above-mentioned problem, Supermx managed to record fairly decent financial performance in the past 2 years. For 3Q2008, its net profit increased by 12.2% q-o-q or 8.7% y-o-y to RM15.5 million, while turnover increased by 26.4% q-o-q or 64.7% y-o-y to RM244 million. The increased turnover resulted from an additional 10 production lines installed in the Group’s Lahat and Kamunting Raya plants in 1H2008 and higher selling prices (due to adjustment for higher input cost & appreciation of the USD, its billing currency). The higher turnover has more than offset the small erosion in profit margin; resulting in higher net profit.



Supermx (closed at RM0.97 yesterday) is now trading at a trailing PE of 4 times (based on last 4 quarters' EPS of 24 sen) or at a Price to Book of 0.6 times (based on NTA per share of RM1.59 as at 30/9/2008). At these multiples, Supermx is deemed fairly attractive.

Supermx has broken above its immediate downtrend line resistance at RM0.85 as well as surpassing the strong horizontal resistance of RM0.90. The breakouts, which were achieved on relatively thin volume, could be followed by a short rally as Supermx tries to catch up with its rivals, Topglove & Kossan (both of which had rallied upwards in the past few weeks). With or without a rally, Supermx's bottoming phase may set in if its share price can maintain above the RM0.90. If that happened, we can look forward to a more sustainable rally in this stock in the future.


Chart : Supermx's daily chart as at Jan 8, 2009 (source: Tradesignum.com)

Based on attractive valuation & positive technical outlook, Supermx could be a good stock for long-term investment.