MARKET consensus seems to point to the notion that the Big Four glove stocks will continue to be in the limelight for an indefinite period of time so long as the rise in global COVID-19 infection is sustainable.
Both Hartalega Holdings Bhd and Supermax Corp Bhd which released their quarterly results yesterday continue to receive endorsement from analysts on grounds of solid future demand.
Commenting on Siupernax, RHB Research touched on the glove maker’s American Dream with plan afoot to build its first gloves manufacturing plant in the US by leveraging its own brand manufacturer (OBM) network
The ambition will be extended to build a UK facility which is slated for construction in the first half of 2021 with commissioning in stages targeted from 1H 2022 onwards.
“We are positive if this plan materialises, as it will enhance Supermax’s brand in the US and UK in the long term,” wrote analyst Alan Lim in a results review.
Supermax saw a gargantuan jump in net profit for 1Q FY2021 to RM812.48 mil from a mere RM24.96 mil in the same period last year while its revenue shot up to RM1.35 bil from RM369.94 mil the first quarter of the previous year.
Against the bright prospects, RHB Research has increased Supermax’s FY2021F-2023F core earnings by 63%-88% due to higher average selling price (ASP) assumptions.
“Note that our FY2021F-2023F blended ASP assumptions of US$71, US$57 and US$48 have already assumed future ASP declines once COVID-19 ends,” justified Lim.
“The current market price for nitrile gloves is US$100.00-115.00/box with latex gloves at 35%-45% discounts to nitrile.”
All-in, RHB Research maintained its “buy” call on Supermax with a higher target price of RM13.25, in line with increased earnings assumptions.
“The biggest risk is a safe and effective COVID-19 vaccine being available globally faster than we expected,” Lim caveated. “Other risks include lower-than-expected sales volume/US$ and higher-than-expected raw material prices.”
A very similar outlook beckons for Supermax’s counterpart Hartalega Holdings Bhd.
Maybank IB Research attributed Hartalega’s strong quarterly earnings performance in 2Q FY2021 to (i) ASP hike of circa 45% quarter-on-quarter (qoq); (ii) sales volume growth of 4% qoq; (iii) expansion of EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin expanded to 52% as the ASP hikes more than offset for the nitrile butadiene rubber (NBR) cost.
“For the upcoming 3Q FY2021, the NBR cost may increase 40%-50% qoq on tight supply, but we think margin could still continue to expand as the ASP hike of 40%-50% qoq would outpace the NBR cost increase,” opined analyst Lee Yen Ling.
NBR cost currently accounts for circa 18% of Hartalega’s revenue and circa 35% of its production cost.
Hartalega posted a 288% spike in its net profit to RM770.76 mil for its 1H FY2021 (1H FY2020: RM198.46 mil) while its 2Q FY2021 results came in at RM549.96 mil against RM104.21 mil in the previous year’s same period.
Maybank IB Research maintained both its “buy” rating and target price of RM20.60 on Hartalega.
“There is still plenty of headroom for Hartalega to raise its ASP as its ASP could still be circa 40%-50% below that of the ASP leaders by end-2020,” projected Lee, noting that some leaders are still looking to raise their ASP further in 1H 2021.
At 11.15am, Supermax was down six sen at RM9.72 with 35.51 million shares exchanged hands (market cap: RM25.1 bil), while Hartalega was down 30 sen to RM17.98 with 2.14 million shares traded (market cap: RM61.63 bil).
