Saved by forex gain but Supermax to endure weakness for 2 more quarters

THERE is no respite for Supermax Corp Bhd as the smallest of Bursa Malaysia’s Big Four glove maker is very much expected to post weaker quarter-on-quarter (qoq) results in its 2Q-3Q FY6/2023F before there could be improvements in demand and average selling prices (ASPs) to lift earnings from 4Q FY6/2023F onwards.

CGS-CIMB Research expects pricing competition to persist in the global glove industry attributable to glove players’ aggressive capacity build-ups in recent years as global demand takes a significant hit.

“However, we currently expect an improvement in sales volume and ASPs from 4Q FY 6/2023F as overstocking issues in the glove industry would likely have dissipated by then, leading to better supply-demand dynamics,” projected analyst Walter Aw in a financial results review.

On a qoq basis, Supermax’s 1Q FY6/2023 revenue and net profit declined by 17.4% and 68.8% to RM247.96 mil and RM5.7 mil respectively owing to further declines in ASPs and sales volume.

“In our view, SUCB could have potentially slipped into a net loss if not for the impact of a weaker ringgit (forex gains of RM44 mil in 1Q FY6/2023); we do not consider this a one-off as exports are an integral nature of the glove business,” opined CGS-CIMB Research.

All-in-all, the research house reiterated its “reduce” rating on Supermax with a slightly higher target price of 70 sen (from 50 sen previously) as it rolls over its valuation year to end-CY2023F.

“Supermax had a net cash position of RM2.7 bil at end-September, translating to RM1/share,” observed CGS-CIMB Research,” observed the research house.

“It currently has capital commitments of RM178.9 mil for PPE purchases for its Malaysia plants. It has also budgeted US$350 mil (or RM1.6 bil, 59% of current net cash) for the first phase (4.7 billion pieces/annum) of a new US glove plant (slated for completion in 2023F).”

At 10.28am, Supermax was down 2 sen or 2.2% to 89 sen with 2.21 million shares traded, thus valuing the company at RM2.42 bil. – Nov 23, 2022

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