Supermax Corporation Berhad (Supermax) 4QFY23 core LATAMI narrowed to RM7.2mn as compared to core LATAMI of RM39.9mn during 3QFY23. This brings full year FY23 core LATAMI of RM149.4mn, which is better than both ours and market expectation, making up 87.3% and 92.6% respectively. We expect that the supply-demand imbalance will persist due to market oversupply and excess inventory, at least until the end of CY23. However, market consolidation is expected to take place in near term given the intense effort from Malaysian glove players to cut their capacity as well as the exit of small players from the industry due to challenging operation. We have a nonRated recommendation on the stock.

• Above expectations. FY23 core LATAMI of RM149.4mn was above both our inhouse and street estimates, making up only 87.3% and 92.6% of our loss estimate respectively. The lesser-than-expected loss was resulted from improved utilisation rate during 4QFY23 as restocking orders take place.

• Dividend. No dividend was declared during the quarter under review.

• QoQ. Revenue jumped by 27.1% QoQ, thanks to higher utilisation rate as demand escalated, pushing the LBT to narrow to RM23mn. We understand that customers have initiated inventory restocking, albeit on a moderate scale.

• YoY. Nonetheless on yearly basis, revenue deteriorated by 25.6% YoY and registered a LBT of RM23mn (vs PBT of RM29.2mn during 4QFY22). The disappointing performance was due to 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 and yet to finalise. Moreover, Supermax overseas distribution remained subdued given the overstocking during peak level of Covid-19 pandemic.

• YTD. As for full year FY23, revenue slid 69.4% YoY while register a LBT of RM196.7mn (vs PBT of RM1bn during FY22). All in all, the group's performance was hindered by a challenging operational landscape such as rising input expenses and an enduring imbalance between supply and demand. These have dampened both ASPs and utilization rate.

• Outlook. We expect that the supply-demand imbalance will continue due to market oversupply and excess inventory, at least until the end of CY23. The decommissioning of the production facility is projected to ease the industry's oversupply situation, gradually moving the market toward a state of normalization. Despite reduced capacity in Malaysian market, we are cautious however on the Chinese capacity that may cause the oversupply situation to persist.

• Forecast. We cut FY24/25 earnings forecast by 3.3%/29.7% to RM38.6mn/RM96.4mn as we tweak lower our margin assumption.

• Call. We have a non-Rated recommendation on the stock.

Source: BIMB Securities Research - 30 Aug 2023