• Overview. 1QFY21 revenue increased to RM1.4bn (45.6% qoq, 265.6% yoy), while PATMI jumped to RM789.5m (97.6% qoq, 3,090% yoy). The record breaking results were mainly due to i) exponential surge in demand due to Covid-19 together with 100% fully commissioning of plant #12 Block A, ii) higher ASP, and iii) better production efficiency. Profit margin improved to 58.4% (+15.4ppts qoq, +51.7ppts yoy) the highest in the industry.

• Key highlights. Supermax recorded higher yields from its c.98% OBM distribution business model with ASPs expected to continue to rise until at least 1QCY21F (previously estimate end-CY20F). On its expansion strategy, 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 is planning to build new glove manufacturing plants in US and UK and expected to kick start the projects in 1HCY21 with commissioning stage starting 1HCY22.

• Against estimates: Above. Supermax’s 1QFY21 earnings was above our and consensus full year forecast at 40% and 41% respectively. The variance was due to the higher-than-expected ASP and margin.

• Outlook. We expect Supermax to record sequentially stellar performance in the coming quarters as they could still continue to surprise on the upside, given the continued surge in glove demand and ASPs on rising Covid-19 resurgence cases with no effective vaccine approved as yet as well as no specific timeline. Long-term demand post-Covid-19 is expected to remain higher >c.12% p.a due to structural change in glove usage globally and greater hygiene awareness.

• Earnings revision and recommendation. We increased our FY21/FY22 earnings forecast by 98/96% as we pencil in stronger glove sales, higher ASPs and margin. However, our TP remains at RM14.50, implying a lower PER of 17x (from 20x previously) pegged on FY22 EPS as we rolled over our valuation year. The lower implied PER is due to supernormal earnings in FY21 and to reflect a moderation in earnings growth towards more sustainable levels beyond that. We like Supermax due to i) higher yield from OBM distribution business model vs its peers, and ii) constant evolution activities. Maintain BUY.

Source: BIMB Securities Research - 28 Oct 2020