Supermax Target Price RM6.91 BUY by OSK Research

OSK Research has maintained its "buy" call on Supermax Corporation although its first quarter financial year 2011 results were below expectations.

The research house believes the earnings of Supermax stand a strong chance to re-rate within a six-12 month horizon.

"Within this period and provided the latex price does not break its recent high of about RM11 per kg and continues the uptrend of late, we think the earnings of Supermax stand a strong chance to re-rate.

"It can then pass on the latex cost increase to its customers in a more accurate and timely manner," it said in a research note today.

The results of Supermax were lower owing to the higher latex price, forex losses and slower-than-expected demand for examination gloves from certain countries.

OSK Research said Supermax Corp Bhd's FY10 results were within expectations and as anticipated, the results were lower on-quarter owing to spiralling latex price and no improvement in forex.

The research house said on Wednesday, Feb 16 although the company is the closest to Top Glove in terms of product mix, it has managed to differentiate itself by having a higher OBM mix as well as distribution income to smoothen its manufacturing profits.

'Our target price for Supermax remains unchanged at RM7.84, based on the existing PER of 13x FY11 EPS. Supermax remains one of our top two picks for the sector besides Kossan. Although we maintain Neutral on the sector, Supermax's valuation still stands out over some of its peers given its single-digit valuation.

'Going forward, we believe the stock would come in for a re-rating when latex price gets toppish, which we think would be sometime in May 2011 when the wintering season of rubber trees is over,' it said.