• Overview. 2QFY21 revenue increased to RM2bn (+47.8% qoq, +418.5% yoy), while PATMI jumped to RM1.1bn (+34.2% qoq, +3,412% yoy). The record breaking results were mainly due to i) exponential surge in demand due to Covid- 19 together with fully commissioning of plant #12 Block A & B and ii) higher ASP (increase of 3-7% mom during this quarter).

• Key highlights. Supermax will add 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 (total allocation of US$550m) and expected to kick start the project in 1H2021 with commissioning stage starting 1H2022.

• Against estimates: Above. 1HFY21 net profit of RM1.8bn (+3,267% yoy) made up 47% and 56% of our and consensus full year forecast. We deem this to be above expectations, owing to higher-than-expected ASPs which to be reflected in upcoming quarters.

• Higher dividend yield. First interim DPS of 3.8 sen was declared during the quarter and we expect FYE21 total DPS of 67sen, translating into DY of 9.9%.

• Outlook. We expect Supermax to record sequentially stellar performance in the upcoming two quarters on the back of higher demand and ASPs. However, with the roll-out of vaccines and rising competition, we are taking a more prudent approach expecting ASPs hike to peak in 1H2021 and gradually decline from 2H2021 onwards. Although ASP is unlikely to sustain at current levels in 2022, we still believe demand growth post-covid19 will remain steadfast at c.10-12% from higher global consumption due to structural change in gloves usage.

• Our call. We now estimate ASP to continue to rise until at least 1H2021 (increase c.3-5% mom), hence we revised our FY21/22 earnings forecast higher by 16%/19% as we adjusted higher our ASP assumption. Despite the rise in earnings, our TP is lowered to RM10.20 (from RM14.50) as we rolled over valuation to CY22F EPS of 73sen pegged on PER 14x (5 yrs pre-covid19 historical forward mean). Our new valuation is justified in our opinion as moving forward, post-covid19 earnings growth will gradually moderate to pre-covid19 level, hence our PE valuation is tracked back to its historical forward mean (pre covid19). Maintain BUY, we believe the stock remains attractive trading at PER of 5x CY21F and 9.3x CY22F. We like Supermax due to i) higher yield from OBM business model vs its peers average, and ii) constant evolution activities.

Source: BIMB Securities Research - 2 Feb 2021