Supermx: Earnings Recovered Somewhat

Result Update

For QE30/9/2016, Supermx's net profit rose 188% q-o-q to RM19.5 million on the back of a 1%-crease in revenue RM269 million. Compared to the corresponding quarter last year, net profit dropped 49% while revenue declined 13%.

Profit before tax dropped y-o-y due to increased minimum wages and further rationalization of natural gas subsidy. The Group has also incurred additional costs for its contact lens division particularly in terms of advertising and promotion expenses. On the other hand, raw material cost was mixed with nitrile cost down 13.3% y-o-y while natural rubber latex cost went up 5.1%.

While profit before tax dropped q-o-q, net profit rose q-o-q due to higher tax charges in the immediate preceding quarter due to additional tax paid amounting to RM7.7 million in respect of previous years’ assessments (YA2007, 2009-2011); and provision for deferred tax.


Table: Supermx's last 8 quarters' P&L

I have tabulated the pre-tax profit and net profit for first 9-month period for the past 10 years. Over the past 4 years, we can see that pre-tax profit and net profit began to diverge because effective tax rate has gone up. In fact in 2016, the effective tax rate soared to 40%. This was due to the reason given above. With the absence of prior year tax charge, net profit should recover for Supermx.

Chart 1: Supermx's las10 years' first 9 months P&L


Chart 2: Supermx's last 27 quarters' P&L

Valuation

Supermx (closed at RM2.18 yesterday) is now trading at a PER of 17.5x (based on last 4 quarters' adjusted EPS of 12.49 sen). At this PER, Supermx is deemed fairly valued.

Technical Outlook

Supermx is moving within a large band between RM1.90 & RM3.30. A breakout above RM3.30 or a breakdown below RM1.90 would point the way forward for the stock.

Chart 3: Supermx's monthly chart as at Dec 1, 2016 (Source: ShareInvestor)
 
Conclusion

Based on poor financial performance and neutral technical outlook, I revised my rating for Supermx from a BUY to a HOLD.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.