• Overview. Supermax’s 1QFY22 net profit decreased to RM638.5m (- 33.4% qoq, -19.1% yoy). This was due to lower ASP and lower sales volume as production was affected by EMCO and National Recovery Plan which limits workforce capacity to 60%. Profit margin dropped to 43.9% (-7.3 ppts qoq, -14.5 ppts yoy)
• Key highlights. US CBP ban on gloves produced by Supermax’s subsidiariesis expected to have a significant impact as we believe it may take a year to resolve the CBP issue and given the likely pressure on ASPs due to its significant exposure to the US market (circa 20%). Recently, their Canada Federal Government contract is on hold pending the submission of the audit report from an Independent Auditor (estimated on 4th week of November 2021) and should the restriction prolonged, could see further impact on earnings.
• Against estimates: Below. 1QFY22 net profit of RM638.5m (accounting 31% of our FY22f) is considered below our FY22 forecast as we believe earnings moving forward will be impacted by lower volume and ASP as well as prosperity tax.
• Dividend declared. Single interim DPS of 5 sen was declared (c.20% payout of 1QFY22 EPS).
• Outlook. We expect Supermax to deliver weaker earnings for subsequent quarters due to overall lower volume and ASP. Margin could further erode due to higher operating and social compliance cost as well as one-off prosperity tax. Hence, we revised down our FY22-23f earnings by 50-55%. Note that we have assumed the CBP ban will only be lifted by end-4QFY22f. Our ASP assumptions for FY22f/23f now stand at US$39/US$27 per 1k pcs.
• Our call. In tandem with earnings revision, we have derived a lower TP of RM1.70 (from RM3.15) based on unchanged PER 11x pegged on CY23F EPS of 15.5 sen. Maintain HOLD.

Source: BIMB Securities Research - 18 Nov 2021