• Overview. Supermax’s 3QFY22 net profit tumbled 72.8%% qoq and 98.7% yoy to RM13m on the back of disappointing revenue of RM407.8m (-22.1% qoq, - 79% yoy) on lower ASPs and sales volume. Off note, sales continued to be impacted by WRO imposed by USCBP since October 2021, on top of suspension orders and deliveries from the Canadian government on Supermax products. Besides, the PBT margin depleted 13.1ppts qoq and 64.8ppts yoy respectively during 3QFY22 resulting from higher operating costs. On the same note, 9MFY22 net profit and revenue were down 75.5% yoy and 54.9% yoy respectively to RM699m and RM2,387m from a higher base during the same period last year arising from the exponential growth during the Covid-19 pandemic.

• Key highlights. Supermax ASPs are expected to decline further in the following quarters in tandem with a fall in market ASPs given softened demand for gloves products during the endemic phase amid oversupply environment. Moreover, termination of contracts with Supermax from the Canadian government on Jan’22 is expected to hamper Supermax sales volume going forward. We understand that Supermax’s sales to Canada represent c.9% of total revenue.

• Against estimates: Inline. We deemed that 9MFY22 net profit of RM699.4m was in line with our in-house (94%) and market expectation (91%), as we expect business to remain challenging for the remaining FY22F on the back of lower ASPs and sales volume.

• Dividend. The Group has declared an interim single-tier DPS of 3 sen during this quarter. Overall, we estimate a total DPS of 8.1 sen for FY22, translating into 7.9% dividend yield.

• Outlook. Tough operating conditions are likely to persist in 2022. We expect Supermax to deliver weaker earnings in the subsequent quarters given overall lower volume and ASPs. The margin could further be eroded by a stiff operating landscape such as a hike in raw materials prices and surge in freight costs as well as higher minimum wages.

• Earnings revision. No changes to our FY22-FY24 earnings forecasts.

• Our call. Maintain SELL with an unchanged TP of RM0.80. Our valuation is pegged at 11x PER and CY23F EPS of 7.2 sen (5 years pre-covid19 historical forward mean). We believe our valuation is justifiable given our expectations that ASP to decline further on imbalance supply-demand condition in rubber glove industry due to aggressive production from new entrants as well as challenging operating environment.

Source: BIMB Securities Research - 26 May 2022