WHETHER there is indeed light at the end of the tunnel or it is already a “game over” situation for Malaysian glove makers is as good as anybody’s guess but analysts seem unforgiving with regard to the destiny of Supermax Corp Bhd.
Amid the glove maker’s 2Q FY6/2022’S net profit and revenue having shrunk 64% and 92.5% respectively – owing to a decline in average selling prices (ASPs) due to slower buying patterns and global glove capacity build up – CGS-CIMB Research has reiterated its “reduce” rating on Supermax with a lower target price of 98 sen (from RM1 previously).
“In our view, current valuations (8% premium to its five-year mean) have yet to capture its weaker-than-expected earnings outlook and ongoing ESG (environmental, social and governance) concerns (foreign labour aspect),” opined analyst Walter Aw in a results review.
“While Supermax’s end-December 2021 net cash of RM3.2 bil (RM1.18/share) is attractive, this has yet to account for potential capex ahead, especially for its US-based plant (capex earmarked of RM2.3 bil for this plant alone).”
Meanwhile, TA Securities Research is of the view that Supermax needs more time (previously Top Glove Corp Bhd took about 14 months) to meet the International Labour Organisation’s (ILO) standards for its employees living and working conditions in order to resolve the WRO (withholding release order) issues.
“Supermax’s current production capacity stood at circa 26.2 billion pieces. The company is currently building five glove manufacturing plants (22.25 billion pieces) concurrently and the plants are scheduled for completion progressively,” noted analyst Tan Kong Jin.
“However, we believe that the group will slow down expansion plans given the current oversupply situation.”
Following its downward earnings revision averaging 34.5% for FY2022/FY2023/FY2024, TA Securities Research has slashed Supermax’s target piece to 77 sen (from RM1.22 previously) while retaining its “sell” recommendation.
Moving forward, Kenanga Research expects Supermax’s earnings in subsequent quarters to be impacted by: (i) potential revenue loss from the US Customs and Border Protection (CBP) WRO which accounts for 20% of sales; (ii) ASP normalising faster than expected; and (iii) impact from one-off prosperity tax in its FY6/2022.
“We (also) expect performance in subsequent quarters to also be impacted by logistic challenges caused by the global shipping container shortage of which we understand are unlikely to abate over the next two quarters,” projected analyst Raymond Choo Ping Khoon.
“In the meantime, margins in subsequent quarters could be impacted as raw material cost is not adjusting as fast as falling ASP and hence earnings could be lower sequentially.”
As such, Kenanga Research has downgraded its stance on Supermax to “underperform” from “market perform” with a lower target price of 90 sen (from RM1.09 previously).
At 9.42am, Supermax was down 4 sen or 3.67% to RM1.05 with 11.68 million shares traded, thus valuing the company at RM2.86 bil. – Feb 23, 2022
