YESTERDAY’S (Oct 21) imposition of a Withhold Release Order (WRO) on Supermax by the US Customs and Border Protection (CBP) would have significant impact to the Big-Four glove maker given the US market contributes about 20% of the group’s sales.
Coupled with the declining average selling price (ASP) trend (8 to 10% month-on-month decline) and normalisation in production lead time, TA Securities Research expected Supermax to flush other markets with its US-exports at depressed selling price.
“Note that the ASPs in other countries are usually lower by 5-10% compared to the US,” analyst Tan Kong Jin pointed out in a company update.
“To resolve this matter, we think Supermax would appoint an independent party to audit and rectify the 10 forced labour indicators grading.
“However, this may take more than one year as evidenced by Top Glove Corp Bhd’s forced labour allegations which took 14 months to resolve and obtain CBP’s nod to resume exports to the US.”
As a result of the WRO, TA Securities Research retained its “sell” rating on Supermax but slashed its target price to RM1.43/share (from RM1.80/share previously) based on revised CY2023 price-to-earnings (PE) multiple of 12 times (previously 13 times).
The research house further downgraded Supermax’s ESG (environmental, social and governance) rating to two-star (from three-star previously).
Meanwhile, MIDF Research downgraded Supermax to “trading sell” (from “neutral” previously) with a lower target price of RM1.67 (from RM2.72 previously).
“Just like its top peer, with the immediate ban in effect we can expect Supermax to start distributing the in-stock rubber gloves meant for US exports to other continents,” justified the research house.
“With the already high number of competition in other continents, utilisation rate of Supermax’s production might decrease in anticipation of customers being careful with purchases in the view of declining ASP.
“The decrease in utilisation rate has been factored into our earnings estimates since we assume that ASP will remain above pre-pandemic levels given the potential higher social compliance costs.”
On July 15 last year, the CBP imposed a WRO or a detention order on imports of disposable medical gloves by Top Glove after identifying all 11 violations of ILO indicators. It took Top Glove more than a year to resolve the exports ban issue.
In September 2019, CBP also took similar action against another Malaysian glove maker WRP Asia Pacific Sdn Bhd, of which the ban was lifted in March 2020.
At 9.35am, Supermax was down 2 sen or 0.98% to RM2.03 with 1.8 million shares traded, thus valuing the company at RM5.52 bil. – Oct 22, 2021
