WITH its projection of Supermax Corp Bhd to continue recording sequentially weaker results in its FY6/2023, CGS-CIMB Research has reiterated its “reduce” rating on the smallest of Malaysia’s Big-Four glove maker with a lower target price of 50 sen (from 94 sen previously).
The research house premised its stance on (i) rising raw material costs (leading to margin compression); (ii) further decline in sales volume (supply overhang issues coupled with its Withhold Release Order [WRO] issue with the US Customs and Border Protection); and (iii) further falls in glove average selling prices (ASPs).
“Due to the current oversupply situation in the global glove industry, we expect Supermax to post weaker sequential results from weak ASPs and sales volume,” opined analyst Walter Aw. “We believe that Supermax’s ASPs for gloves will decline to US$20-US$21 per 1,000 pieces from an estimated US$23-US$24 as of end-4Q FY2022.”
According to CGS-CIMB Research, Supermax’s 4QFY6/2022 core net profit stood at a mere RM1 mil (-99.9% year-on-year [yoy]) as RM32.2 mil was derived from a one-off gain (mainly gain from sale of fixed assets for US$5.3 mil [RM23.8 mil]).
This brought the glove maker’s FY6/2022 core net profit to RM700 mil (-81.9% yoy) which is below the research house’s estimate (99.1%) and Bloomberg consensus (98.5%). Supermax has declared an interim dividend of 3 sen/share, bringing its FY6/2022 dividend to 11 sen/share (36.7% payout) which is also below CGS-CIMB Research’s estimates.
“Supermax is slowing down its capacity expansion plans in Malaysia (total capex of RM1.4 bil earmarked for four plants),” observed the research house.
“While construction of its four new plants (Plant #13, #14, #15 and #16 with total estimated annual capacity of 16.3 billion pieces) is at various stages, it only plans to commission production lines in these four plants upon recovery in demand in the global glove market.”
Nevertheless, Supermax’s expansion plans in the US appear to be on track for CY2023F commissioning with RM1.6 bil capex earmarked for this project (57% of its current cash).
Meanwhile, Kenanga Research has also retained its “underperform” call on Supermax by trimming its target price slightly to 62 sen (from 65 sen previously) in line with the belief that the industry oversupply situation will persist at least over the next two to three years.
“We expect ASP to remain in the doldrums in 2H 2022,” projected analyst Raymond Choo Ping Khoon.
“As a result of the massive capacity expansion by incumbent players as well as new players jumping onto the bandwagon during the pandemic years – enticed by the then super fat margins that had eventually evaporated – we estimate that the global glove manufacturing capacity has jumped by 22% to 511 billion pieces in 2022.”
Based on Kenanga Research’s estimates, the demand-supply situation will only start to head towards equilibrium in 2025 when there is virtually no more new capacity coming on-stream while the global demand for gloves continues to rise by 15% per annum underpinned by rising hygiene awareness.
At 9.27am, Supermax was up 0.5 sen or 0.65% at 78 sen with 1.95 million shares traded, thus valuing the company at RM2.12 bil. – Aug 23, 2022
