• Overview. 4QFY20 revenue increased to RM929m (108% qoq, 147% yoy), while PATMI jumped to RM399.6m (462% qoq, 2,554% yoy). The record breaking results were mainly due to i) exponential surge in demand due to Covid-19 together with additional full commissioning of plant #12 Block A, ii) higher ASP, and iii) lower overall production costs. Margin improved to 43% (27.1ppts qoq, 39ppts yoy) the highest in the industry.
• Key highlights. Supermax recorded higher yields from its c.95% OBM distribution business model with ASPs higher by c.35-40% qoq (April-June). Capitalizing on the OBM model and growing global demand, Supermax plans to build 5 glove manufacturing plants with additional production capacity of 22.25bn pcs p.a. making a total of 48.42bn pcs p.a. by end-2022 (refer table 2). Additionally, Supermax had decided to enter into FaceMask manufacturing in Malaysia under a new division named Supervision Optimax SB with initial capital of RM8m. The commercial production is targeted to be in CY4Q20 with initial capacity of 8m pcs/ months.
• Against estimates: Above. FY20 PATMI of RM525.6m (+324.7% yoy) was above our and consensus full year forecast at 119% and 131% respectively. The variance was due to the higher-than-expected ASP and margin.
• Outlook. Unabated and rapidly increasing global Covid-19 infections are causing a skyrocketing demand for medical gloves. We expect Supermax to record an extraordinary earnings growth in FY21 with sequentially supernormal earnings on the back of higher ASPs, which is expected to peak in 1HFY21 as well as increase in economies of scale. Long-term demand post Covid-19 is anticipated to remain higher +c.12% p.a on greater hygiene awareness, as well as structural change in gloves usage globally in non-medical sectors such as food and services industries
• Our call. We expect sequentially supernormal earnings than expected but make no change to our forecast and TP for now pending more updates from results briefing on 11th Aug 2020. Our current TP of RM20.00 is based on PER 19x pegged on FY21 EPS. We like Supermax due to i) higher yield from OBM distribution business model vs its peers, and ii) constant evolution activities (e.g. automation and cost efficiency). Maintain BUY.

Source: BIMB Securities Research - 11 Aug 2020