Supermax may ride on the Americans producing their own gloves

SUPERMAX Corp Bhd has found itself in a sweet spot as the US may contemplate using its Defence Production Act (DPA) to produce 12 billion gloves annually to reduce its reliance on imported personal protection equipment (PPE).

RHB Research reckoned that the glove maker stands a great chance of participating in this initiative.

“It (Supermax) has distribution channels through Aurelia Gloves in the US,” enthused analyst Alan Lim in a company update. “From its website, Aurelia Gloves stated that it has been the top provider of examination gloves in the North American market since 2000.”

As Supermax is also the glove manufacturer with a 26.2 billion pieces per annum (ppa) capacity, it could be able to participate in this DPA initiative, according to RHB Research.

In fact, the company has shared details of its plan to build a manufacturing facility in its 2Q FY2021 results announcement,” Lim pointed out.

At a media briefing by the White House COVID-19 Response Team and public health officials, the COVID-19 Supply Coordinators representative Tim Manning was quoted as saying:

“Right now, we just don’t have enough gloves; we’re nearly 100% reliant on overseas manufacturers to export to our country surgical gloves that protect healthcare workers, and that’s unacceptable.”

RHB Research expects positive news flow on this matter over the next three to six months.

“The company’s stronger earnings growth prospects in 3Q FY2021F and investors’ expectation of a special dividend should support its share price performance as well,” projected the research house.

All-in, RHB Research retained its “buy” rating on Supermax with an unchanged target price of RM10.60 premised on (i) positive news flow on its US glove manufacturing plant in the near term; (ii) earnings growth in 3Q FY2021F; and (iii) expectation of special dividends.

On the contrary, risks associated with Supermax include (i) worse-than-expected demand for gloves after the COVID-19 pandemic ends; (ii) lower-than-expected sales volume/US dollar; and (iii) higher-than-estimated raw material prices.

At 9.55am, Supermax is down 27 sen or 4.05% at RM6.40 with 5.56 million shares traded, thus valuing the company at RM16.48 bil. – Feb 8, 2021

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