Supermax catches COVID-19 ‘bug’; slight impact on earnings inevitable

IN LIFE, there is always a first time for everything.

Supermax Corp Bhd which is by far the only Big Four glove maker spared from the COVID-19 virus reported yesterday that it is implementing a three-day work stoppage (Feb 10-12) after having discovered several positive COVID-19 cases among its factory workers.

Assuming that all six of Supermax’s affected plants in Meru, Klang are not operational for only three days, CGS-CIMB Research expects an impact of -0.4% on its FY 6/2021F net profit forecast.

“Also, our sensitivity analysis indicates that should the six plants be non-operational for one week, our FY 6/2021F net profit estimate for Supermax will be reduced by 1%,” projected analyst Walter Aw.

“We understand that Supermax has adopted stringent standard operating procedures (SOPs) to combat COVID-19 since 1Q 2020 and this is the first time it recorded positive COVID-19 cases which it suspects spread to its workers through third-party transporters.”

Supermax has a total of 12 factories, six of which are in the Meru, Klang area. In CGS-CIMB estimates, the six factories account for some 50% of the company’s total current production capacity of 26.2 billion pieces annually.

Meanwhile, its operations in other locations – namely, Sungai Buloh, Selangor; Melaka; and Perak – which are not affected will continue to operate as normal

“Our channel checks found that as of yesterday, less than 3.5% of Supermax’s total estimated workforce of 3,300 tested positive for COVID-19,” noted the research house.

“We understand that most of the workers who tested positive were asymptomatic; only six showed any COVID-19 symptoms and they have been hospitalised.”

All-in, CGS-CIMB kept Supermax’s FY2021-2023F earnings per share (EPS) estimates intact pending further updates on this matter.

It also retained the company’s “add” call and target price of RM11.80 based on 15 times CY202022F price-to-earnings ratio (P/E) in line with the glove sector’s five-year mean P/E.

“We continue to view Supermax as an attractive play, backed by (i) strong global glove demand owing to COVID-19; (ii) its higher-than-average margins in the sector (due to its original brand manufacturing model); and (iii) its solid dividend yields of 3.8-10.6% for FY2021-2023F.

At 11.25am, Supermax was up 1 sen or 0.16% at RM6.21 with 3 million shares traded, thus valuing the company at RM16.89 bil. – Feb 10, 2021

Subscribe and get top news delivered to your Inbox everyday for FREE