PEAKING average selling prices (ASPs) will be a bane for glove makers in the days ahead.
Gauging from Supermax Corp Bhd’s latest set of results, MIDF Research expects ASPs to moderate depending on the development of the COVID-19 pandemic and how soon the health crisis can be contained.
“We understand that some buyers are adopting a wait-and-see approach in replenishing their inventories given the high prices currently,” analyst Ng Bei Shan pointed out in a results review.
According to the research house, Supermax’s core net income of RM2.9 bil for the 9M FY6/2021 period is deemed below expectation as it had previously anticipated a much stronger 3Q FY6/2021 by the glove maker.
All-in, the results made up 72.2% of MIDF Research’s full and 71.7% of consensus’ full estimates.
The research house further contended that the production capacity of glove makers has expanded due to attractive profitability during this period that led to moderation in spot prices for rubber gloves as supply increases.
“On the other hand, worldwide structural step-up and better hygiene awareness has created the demand for additional rubber gloves which is expected to support prices at above pre-pandemic level,” opined MIDF Research.
“In the near-term, we do not expect a drastic correction in ASP as demand is expected to remain high.”
All-in, MIDF Research maintained a “buy” rating on Supermax but slashed its target price substantially to 6.73 (from RM13.83 previously) as it rolls over its base year.
Meanwhile, RHB Research also retained Supermax’s “buy” call but adjusted downward the company’s discounted cash flow (DCF)-derived target price to RM6.60 from RM8.75 previously.
“Supermax 9M FY 6/2021 earnings missed expectations as its production was affected by COVID-19 at its manufacturing plant,” observed the research house.
“After lowering utilisation rate and ASP assumptions, we reduce our target price. At RM5.57 (closing price on May 5), Supermax’s share price has declined 53% from its August 2020’s peak. It is trading at 4.3 times FY6/2021F P/E (price-to-earnings ratio) and offers 7% yield.”
At 9.52am, Supermax was down 51 sen or 9.16% to RM5.06 with 30.92 million shares traded, thus valuing the company at RM13.77 bil. – May 6, 2021
