• Not-Rated. Supermax narrowed it losses during 9MFY24, reporting a core LATAMI of RM63.9mn compared to core LATAMI of RM134.4mn during 9MFY23. This outcome was significantly below both our in-house and market expectations, due to weak demand amidst current oversupply in the industry. We revised our FY24F earnings forecast from a core PATAMI of RM7.3mn to a core LATAMI of RM27mn. Additionally, we reduced our FY25-26F earnings forecasts by 73.3% and 7.6% to RM27.7mn and RM60.5mn respectively, to account for lower sales volume. Management anticipates no improvement in FY24 performance due to the challenges posed by high-priced overseas stock and persistent high material and utilities costs. Despite these operational difficulties, we believe Supermax's substantial cash reserves will provide nearterm support for the business. We have a non-rated recommendation on the stock.

• Key Highlight. 3QFY24 revenue decline 1.7% QoQ and 18.6% YoY. Nonetheless, PBT margin improved 45.5ppts QoQ and 44.7% YoY respectively, thanks to better cost structure following more efficient production lines, and shutdown of old and non-efficient lines. As at 9MFY24, the group cash per share stood at 57sen/share.

• Forecast. We revised our FY24F forecast from a core PATAMI of RM7.3mn to a core LATAMI of RM27mn. Additionally, we reduced our FY25-26F earnings forecasts by 73.3% and 7.6% to RM27.7mn and RM60.5mn respectively, to account for lower sales volume.

• Outlook. Management expects no significant performance improvement for the remainder of FY24 due to the high volume of expensive stock held in its overseas distribution centers. We believe Supermax faces ongoing challenges due to these high stockpiles, which are hindering operational efficiency. However, its substantial cash reserves should support the business in the near term. Notably, the group maintains a high cash-to-market cap ratio of 56.7%. Overall, we maintain a neutral view on the industry. The decommissioning of production facilities by glove manufacturers is expected to alleviate the industry's oversupply situation. Nonetheless, we remain cautious about the potential for prolonged oversupply due to capacity issues in China.

Source: BIMB Securities Research - 29 May 2024