CGS-CIMB maintains bullishness on Supermax though slashes target price

DESPITE global investment bank JP Morgan retaining its bearish stance on the glove sector, local research houses tend to think otherwise.

This follows CGS-CIMB Research’s latest assessment of Supermax Corp Bhd by reiterating its “add” call on the glove maker albeit slashing the latter’s target price by 18.2% to RM10.80 from RM13.20 previously.

“Note that we now peg Supermax to the glove sector’s five-year mean despite its robust earnings prospects as we take a more conservative approach given its impressive FY2021-2023F numbers may potentially be one-offs,” justified analyst Walter Aw in a company update.

“Still, we think Supermax remains as an attractive proposition backed by (i) strong global glove demand owing to COVID-19; (ii) higher-than-average margins in the sector (due to its OBM model); and (iii) solid dividend yields of 3.3-6.7% (FY2021-2023F).”

According to CGS-CIMB Research, Supermax has a current order backlog of up to at least end-1Q 2022F (the company’s 3Q FY6/2022F).

“This is driven by robust global glove demand which Supermax believes could sustain for at least the next one-and-a-half to two years,” revealed Aw.

“Also, it expects its average selling prices (ASPs) to remain on an uptrend for at least until end-3Q FY6/2021 (average 5% month-on-month increase in 3Q FY6/2021) while it believes that ASPs should not decline until at least end-1H FY6/2022F.”

On the bright side, CGS-CIMB Research said Supermax remains the only Big Four glove maker that has a zero positive COVID-19 case thus far post screening all of its circa 3,000 workers recently.

“We believe Supermax plans to test all of its workers on a monthly basis with those working in the packaging area receiving extra scrutiny,” noted the research house.

“It will also continue to implement stringent COVID-19 prevention measures such as regular sanitisation of all its facilities, including factories and hostels.”

For the record, JP Morgan has argued in its latest research note dated Jan 11 that demand for gloves would ease with vaccinations now underway, contrary to perception that the demand for disposable rubber gloves will not shrink sharply as frontliners still need them during vaccinations.

As such the investment bank has maintained “underweight” calls on Top Glove Corp Bhd with target price (TP) at RM3.50, Hartalega Holdings Bhd (TP: RM8.50) and Kossan Rubber Industries Bhd (TP: RM3.80).

At 10.05am, Supermax was down 23 sen or 3.23% to RM6.88 with 9.04 million shares traded, thus valuing the company at RM18.72 bil. – Jan 14, 2021

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