• Overview. Supermax’s 4Q22 net profit tanked by 96.5% YoY but jumped by 154.1% QoQ. Meanwhile, revenue stood at RM300.2mn which declined by 84% YoY and 26.4% QoQ respectively. For full year FY22, both net profit and revenue tumbled by 62.5% YoY and 80.8% YoY respectively from FY21. Overall, the lessthan-impressive results were dragged by lower average selling prices (ASPs) as well as sales volume. Of 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 coupled with higher operating costs due to higher input prices and an increase in staff cost due to the implementation of minimum wage beginning May.

• Key highlights. Supermax ASPs are expected to decline further in the coming quarters in line with a fall in demand and a supply glut. Moreover, the termination of contracts with Supermax from the Canadian government since January 2022 is still in effect and will continue to hamper Supermax sales volume going forward. We understand that Supermax’s sales to Canada represent c.9% of total revenue.

• Against estimates: Inline. FY22 net profit of RM732.4mil was in line with our and street expectation which accounted 98.4% and 103.1% of full year forecast.

• Dividend. The Group declared a final DPS of 3 sen during 4QFY22. This brings a full year dividend payout to 6 sen, translating into a 7.7% dividend yield.

• Outlook. Tough operating conditions are likely to persist until CY23. We expect Supermax to deliver weaker earnings in the subsequent quarters given lower volume and ASPs. Margin could crimp further given a hike in raw materials prices, surge in freight costs as well as higher minimum wage.

• Earnings revision. We cut our FY23f-FY24f earnings forecasts by 34.4% and 35.5% respectively to account for lower ASP and sales volume as well as margin compression.

• Our call. Maintain a SELL call with a lower TP of RM0.64 (RM0.80 previously) following our earnings adjustment. Our valuation is based on 13.7x PER that is pegged to CY23F EPS of 4.7 sen (30% discount from average sector 5-yrs historical forward PE of 19.6x). We believe our valuation is justified given our expectations that ASP could decline further due to supply-demand imbalance, stiff competition from China makers as well as challenging operating environment.

Source: BIMB Securities Research - 23 Aug 2022