Supermax posts lower net profit

 By LEONG HUNG YEE  

Q4 result affected by latex costs and exchange rate

PETALING JAYA: Supermax Corp Bhd's net profit fell 24.8% to RM32.7mil for the fourth quarter ended Dec 31 from RM43.5mil previously due to the continuous high prices of latex and unfavourable exchange rates.

Revenue for the quarter hit RM232.7mil, an increase of 18.4% compared with RM196.4mil posted in the same period a year ago. Pre-tax profit fell to RM32.8mil from RM50.3mil and earnings per share eroded to 9.62 sen versus 16.22 sen previously.

The glove maker has proposed a tax exempt final dividend of 5% per ordinary share of 50 sen for the financial year ended Dec 31, 2010 subject to the approval by shareholders at the forthcoming AGM.

For the full year, Supermax's pre-tax profit rose to RM168.2mil from RM126.6mil. It recorded a 14.9% rise in turnover to RM923.2mil. Net profit rose 32.8% or 49.45 sen per share, for the period under review.

An analyst says glove makers have shown that they are able to pass on the cost of higher latex prices and weaker US dollar to end-consumers.

 

The group said it had managed to achieve the profit guidance of RM168mil, as set out at the beginning of the year, despite the difficult operating environment.

Supermax said the rising costs of latex and weakening of the US dollar posed a challenge; nevertheless, its management had the experience to tackle the headwinds and minimise their impact.

“Glove prices are raised in tandem with latex price increases and management has taken steps to adjust glove prices on a more regular basis to pass through the cost increase,” it said in the notes accompanying its financial results.

Supermax believed the US dollar would not see a significant fall this year as it did last year and latex prices would correct to more reasonable levels this year.

“Moving forward, we expect demand to remain strong, driven by new usages for gloves, rising demand from developing countries that are growing more affluent and spending more on healthcare. More countries are also regulating their healthcare industry,” it said.

On its prospects for FY11, Supermax is targeting earnings growth of between 15% and 20% with its planned capacity growth and changing of product mix in line with market demand and price trends.

Meanwhile, analysts said the higher latex prices had affected the industry as a whole, eroding their margins while a situation of oversupply and normalising demand prevailed.

However, they were positive on rubber glove makers which still enjoyed robust demand from the traditional healthcare as well as new segments such as the food and services industry.

An analyst said Supermax's latest quarterly results was within its expectations but slightly below market consensus. “Glove makers have shown that they are able to pass on the cost of higher latex prices and weaker US dollar to end-consumers,” he said.

According to Bloomberg, Supermax's net profit for FY10 accounted for about 95% of the consensus estimates for FY10. Bloomberg's consensus estimates expect Supermax to post RM195.4mil in net profit for the full year in FY11.

In an earlier report, CIMB research believed Supermax might report an 8% to 21% quarter-on-quarter decline in fourth quarter net profit to RM30mil to RM35mil. It implied a FY10 net profit of RM165mil to RM170mil or a shortfall of 8% to 10% against its forecast of RM183.8mil and 5% to 7% against consensus.
The research house remained positive of Supermax's long-term earnings outlook and would not change its recommendation when the results were released.

Earlier, glove companies reported mixed earnings. Hartalega Holdings Bhd had posted a higher net profit of RM49.2mil for the third quarter ended Dec 31, 2010, from RM37.2mil. a year ago, while its revenue rose to RM188.1mil from RM148.6mil.

The higher profit was in line with the group's continuous expansion in production capacity, increase in demand, effective cost control and improvement in production processes.

Meanwhile, Top Glove Corp Bhd posted a 44% drop in net profit to RM36mil for the first quarter ended Nov 30, compared with RM65.2mil previously due to persistently high latex prices and the continued weakening of the US dollar coupled with the time lag in passing on the higher costs to its customers. Its revenue stood at RM491.5mil against RM472.3mil previously.