• Overview. Supermax’s 4QFY21 PATMI increased to RM958.7m (+140% yoy). This was due to i) increase in demand due to Covid-19 together with full commissioning of plant #12 Block A & B and ii) higher ASP. However, qoq PATMI dropped by 5% mostly on the back off fall in ASP as more glove supply becomes available in the market.

• Key highlights. On the expansion plan, Supermax is concurrently building 5 new glove plants (capex of RM1.39bn) and expected to increase production capacity by 85% (22.25bn pcs p.a.) to 48.42bn pcs p.a. by end2022. Additionally, Supermax is currently in negotiation to build a new glove manufacturing plant in the US and an official announcement will be made once the details are finalized.

• Against estimates: Inline. Supermax’s registered a record year FY21 PATMI of RM3.8bn (+626.6% yoy), thanks to spike in both glove demand and ASP since March 2020. Profit margin improved to 53.2% (+28.6 ppts yoy). The results was inline with our and consensus expectation at 104%.

• Dividend declared. Special DPS of 15sen was declared during the quarter and to be paid on 30th September. This brings a total YTD DPS of 31.8sen (c.23% payout), below our expectation.

• Outlook. Supermax earnings to fall from 1QFY22 onwards despite potential Delta variant driven demand. This is due to i) lower production volume (disruption from EMCO and longer National Recovery Plan Phase 1), ii) potential of loss market share to foreign producers iii) sector’s ASP to trend lower. With competition rising and a more balanced supply and demand, we believe Supermax’s OBM model will not be able to sustain its premium ASP in the market and margin is likely to decline by a larger quantum compared to its peers.

• Our call. Maintain HOLD with TP of RM3.15. Our valuation is based on unchanged PER 11x (Supermax’s 10-years historical forward average) pegged on CY23F EPS to reflect the normalized earnings moving forward. We believe weakening investor sentiment due to current operations at a reduced capacity and uncertainty in the drop of future ASP would likely lead to sideways price movement.

Source: BIMB Securities Research - 27 Aug 2021