SUPERMAX Corp Bhd can expect substantial impact on its future expansion plans – and eventually earnings – if it does not find a viable long-term solution to mounting forced labour allegations levelled against the group.
MIDF Research raised such concern in light of an announcement by Canada’s public services and procurement department yesterday (Jan 18) that it has terminated its sourcing contract for nitrile gloves with Supermax following forced labour allegations.
Canada has paused imports of the gloves in November 2021 to decide on the next step after receiving negative audit report about the labour practices.
Although Canada represents around 9% of the group’s total market share and this fluctuates based on the tenders awarded each year, it has to be borne in mind that Supermax also faces import ban from the US Customs and Border Protection (CBP) in October 2021.
“Despite stating its efforts to improve its ESG (environmental, social and governance) standards since 2019, we opine that the current consecutive forced labour allegations highlight the lack in application of the policies designed across the group,” MIDF Research pointed out in a company update.
“We believe that with proper implementation of the policies, the group will be able to weather the storm efficiently.”
On a positive note, MIDF Research expects the time taken to overcome the termination of Supermax’s contract could be sooner compared to other glove manufacturing companies given the group has responded promptly to mediate this situation by introducing a foreign worker management policy on Jan 3 to speed up efforts to meet the International Labour Organization’s (ILO) labour standards.
Moving forward, MIDF Research trimmed Supermax’s earnings estimates for FY2022E, FY2023F and FY2024F by -2.1%, -2.6% and -2.3% respectively as it has already imputed the substantial impact from the ongoing ban from the US and due to the smaller portion of Canada’s current contribution to the group’s revenue.
All-in-all, the research house reiterated its “neutral” rating on Supermax with a revised target price of RM1.39 (from RM1.48 previously).
At 10.30am, Supermax was down 3 sen or 2.22% to RM1.32 with 7.05 million shares traded, thus valuing the company at RM3.59 bil. – Jan 19, 2022
