• Not-Rated. Supermax reported a core LATAMI of RM43.8mn compared to core LATAMI of RM164.6mn during FY23. This outcome was significantly below our in-house projection but within market expectations. The lower-than-expected earnings was due to lower sales volume and higher operating costs. We reduced our FY25-26F earnings forecasts by 10.7% and 10.6% to RM24.3mn and RM54.1mn respectively, to account for lower sales volume and margin assumption. We foresee the group's operations being dampened by high material and utility costs which are expected to result in continued margin squeeze both currently and going forward. Overall, the broader rubber glove industry's recovery remains uncertain with structural issues like oversupply from Chinese manufacturers posing ongoing challenge. We have a non-rated recommendation on the stock.

• Key Highlight. 4QFY24 revenue improved 25.6% QoQ, thanks to higher sales volume. Nonetheless, PBT margin decline 70.1ppts QoQ due to due to higher operating costs that include pre-operating expenses of the new US plant and additional tax charged at certain manufacturing units. Supermax is seeing a gradual increase in customer orders though at low market prices. Following the shutdown of four old plants and upgrades to manage excess capacity and costs, the group is ramping up production in line with a recovery in demand. Supermax plans to build six new modern and more efficient manufacturing blocks remains in place. However, the installation of production lines will be adjusted according to current and anticipated market conditions.

• Forecast. Due to lower-than-expected results, we reduced our FY25-26F earnings forecasts by 10.7% and 10.6% to RM24.3mn and RM54.1mn respectively, to account for lower sales volume and margin assumption.

• Outlook. We believe Supermax will continue to faces ongoing challenges from high material and utility costs, which are expected to result in continued margin squeeze. While the recent Mpox resurgence is expected to boost glove orders, we believe the impact on the industry will remain minimal due to the existing overcapacity in the market. Overall, we remain concerned about the broader rubber glove industry's recovery to pre-COVID levels. Structural issues, particularly the oversupply resulting from massive production by Chinese manufacturers, continue to pose significant challenges.

Source: BIMB Securities Research - 30 Aug 2024