Supermx has announced its results for QE31/3/2011, where its net profit dropped 25% q-o-q or 53% y-o-y to RM24.4 million. This is on the back of increased turnover of RM241 million (an increase of 3.7% q-o-q or 9.4% y-o-y). Again, the drop in the bottom-line was attributed to stronger Ringgit & higher cost of rubber latex.
Table: Supermx's last 8 quarterly results
Chart 1: Supermx's last 18 quarterly results
Chart 2: Supermx's profit margin for the last 18 quarterly results
Future Prospect
The company continued to switch more of its production to nitrile gloves as well as expanding its capacity & capability to produce more surgical gloves and to reduce the lead time in its production. However, the near-term earning for the company would depend on the price of rubber latex which is moving favorably (see the chart below) as well as the cross rate of USD-RM which is too volatile.
Chart 3: RSS3 price chart as at May 13, 2011 (Source: Rubbernet)
Valuation
Supermx (closed at RM3.96 on May 13) is now trading at a PE of 9.4 times (based on last 4 quarters' EPS of 42 sen). At this PE, Supermx is deemed fairly valued.
Technical Outlook
Supermx has been consolidating within a triangle for the past 12 months. A downside breakout below the RM4.00 could lead to a continuation of the prior downtrend. As at 11.00am this morning, Supermx is trading at RM3.92. The next support is at the horizontal lines of RM3.70 & RM3.60.
Chart 4: Supermx's daily chart as at May 13, 2011 (Source: Tradesignum)
Conclusion
Based on deteriorating financial performance & poor technical outlook, I would rate Supermx as an AVOID for those currently looking to buy the stock or to REDUCE for those currently holding the stock. However, the stock is not grossly overvalued and it could benefit from any decline in the cost of rubber latex as well as strengthening of the USD.
6 comments:
Dear Alex :
I have been holding Hartalega for some times. If you look at the glove industry, Hartalega is now leading all its peers by a mile. If we comparing the current profit of Hartalega it is actually much higher than TopGlove the leading glove maker ( or shall I say previous leader in term of profit ). I do agree that they would be more players to plunge into nitrile glove making. But still, it would be rather hard to compete since Hartalega is still far ahead with their technological-know- how. However its share price is not really reflected its true value. Is is because the market categorize it as merely a glove maker as the others like Supermax, Latex and Top Glove. I appreciate your view. Thank you.
hi alex,
can you pls comment on Hap Seng? is it good to buy now since it's going to have bonus issue soon?
thanks
maxwealth88
hi bro alex. please comment on TWSCORP. i heard it will goreng to RM1.80. based on technical, TWSCORP can buy ?? thx.
Hi Akagi Shigeru
What can I say? Hartalega happens to move with the wrong crowd. The company is doing great, unlike the rest of the glove sector, but investors are not too excited about this sector. I think part of the reason may be because the other players are switching to the production of nitrile gloves. This means that Hartalega's advantage will slowly diminish. And, with that, its profit margin may also decline.
Hi MaxWealth88
HapSeng seems to have found some support at the horizontal line RM5.30. If that support failed, it may test the psychological RM5.00 level and thereafter the horizontal lines at RM4.80 & RM4.20.
If you are stuck in this stock, the resistance level to look out for is the downtrend line at RM5.75-5.80 or the 20-day SMA line at RM5.65-5.70.
Hi wong
TWSCORP is moving within an expanding triangle or a "loud hailer" formation. The resistance [& thus the possible target for its current rally] is at RM1.30.
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