Thursday, 10 August 2017

Superman downed in rubble, but Supermax will grow with rubber

You can call me thick faced hard sell on Supermax. So, I had to tell you - Yes I am indeed thick face hard selling on Supermax, but with a condition - When Supermax is currently trading at the price of RM 1.90.

I recall those hard time during last year (2016) when one of the stock that I had been recommending is not moving despite displaying convincingly good results with growth. That stock was Arank. I remember recommending Arank when it is just trading at a mere 70 cents region, and the stock continue to stay stubborn, not until the sentiment starts to recover, and Arank starts to get it's momentum and now Arank is trading at the range of RM 1.10.

As you can see, investing during tough times takes a lot of patience in order to see your fruits blossom. But firstly, the fruit that you choose must be healthy and not infested with worms.

Now come back to Supermax.

Talking on business fundamental, Supermax is definitely a fundamentally strong company. Given consistent dividend and showing growth from year to year basis.

Despite that, Supermax is now trading at an all time low position, with share price going far back into the 2013 price range. Yes, you can argue that this company could be shun by investor due to some governance issue such as insider trading and also being accidentally involved in some political talks. But those are past and I think potential investor should not punish themselves by losing out this opportunity by clinging on the past issue. After all, past is past, and what we are going to do in the present world will determine the future.

Now, I have to tell you that the glove industry actually do not depend largely on medicine industry alone. In fact, manufacturing sector such as semiconductor industry are consuming high amount of gloves due to the operation in the cleanroom environment.

With the thriving business in the semiconductor industry, the demand for gloves usage is continue to be on the rise. Healthcare also continue to see consistent demand, while seasonal flu in various countries will push demand higher for a certain period.

Hartalega, being one of the leading gloves manufacturer in the world had recently reported a 71% increase in net profit.

I believe this surge of revenue is industry wide effect, while one of the leading factor will be the stronger USD.

For the period of Jan to Mar 2017, Supermax had a total revenue of RM 308 million. For the same comparative quarter, Hartalega had RM 527 million. Hartalega latest financial result Apr - June 2017 shown RM 601 million in revenue.

Should this be an industry wide benefit, what we can assume is that Supermax revenue could be able to linger at the range of RM 350 million, and probably looking to see EPS around 3.5 cents.

Based on a projection of annual EPS at 12.72 cents and trading at an industry PE of x 20, Supermax valuation can be looking at RM 2.50

At the current price below RM 1.90, Supermax is deem undervalued from an industry perspective.

Will Supermax wake up soon ? I hope before he wakes up, you are on boat for the ride.

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