Supermax Corporation Berhad (Supermax) core LATAMI of RM39.9mn narrowed during 3QFY23 compared to core LATAMI of RM52.9mn in 2QFY23 and a core PATAMI of RM13mn in the same period a year ago. This brings 9MFY23 core LATAMI to RM142.3mn. The result was above ours and market forecast or at 102.6% and 92.2% full year estimates respectively. Market consolidation is expected to take place in the near term given intense effort from Malaysian glove players to their capacity as well as the exit of small players due to challenging operation conditions. Upgraded to a HOLD on Supermax, with higher TP of RM0.92.
- Above expectations. 9MFY23 core LATAMI of RM142.3mn was above our inhouse and street estimates, making up 102.6% and 92.2% of full year estimates respectively given higher-than-expected ASPs and utilisation rate.
- Dividend. The Group declared an interim single tier dividend of 3.5sen per share, which translate into 3.5% yield at current share price.
- QoQ. Revenue inched up slightly or by 0.5% QoQ, thanks to higher utilisation rate as demand escalated on top of stabilisation in ASPs and therefore, pushing PBT margin to rise by 17.3ppts QoQ.
- YoY. On yearly comparison revenue declined by 56.7% YoY however, posted a LBT of RM75mn (versus PBT of RM18.3mn during 3QFY23. Top line was weighed down by lower ASPs due to stiff market competition, largely from Chinese glove players albeit slowing demand. Moreover, sales order from Supermax were still adversely impacted by WRO imposed by USCBP since October 2021. Supermax overseas distribution remained at a dull given that they have overstocked during peak of COVID-19.
- YTD. 9MFY23 revenue slid 74.9% YoY while registering a LBT or RM173.7mn (vs PBT of RM1bn during 3QFY23). All in all, the group performance was impeded by tough operating environment such as rising input costs and persistent supply and demand imbalance where this hurt ASP and utilisation rate.
- Outlook. We foresee supply-demand imbalance to persist due to oversupply and overstocking in the market where this may last until end CY23. Market consolidation is expected to take place in the near term given intense effort from Malaysian glove players to cut capacity as well as the exit of small players due to challenging operation condition. We remain cautious despite this as the Chinese capacity is still sizeable and hence, overcapacity condition to continue.
- Forecast. In view of higher-than-expected losses assumption, we extend our FY23F losses assumption to RM171.2mn (from RM138.7mn) and increase FY25F earnings forecast by 17.4% to RM42.2mn after some a new assumption on ASPs.
- Upgraded to HOLD, TP: RM0.92. Upgraded to a HOLD from SELL for Supermax with higher target price of RM0.92 (RM0.58 previously). Our valuation is now based on FY23F BV/share of RM1.8 and 3-years average historical low P/BV of 0.51 (60% discount).
Source: BIMB Securities Research - 19 May 2023