• Supermax (SUCB) reported a very strong set of FY20 results, as PATAMI of RM525.6m (+340% yoy) is above both market and our expectations
• The better-than-expected performance was driven by both higher sales volume and also higher ASP, especially in 4QFY20
• We have raised our EPS forecast for FY21-22E by 106%-154% due to the higher ASP realisation, and maintain our BUY call with a higher TP of RM33

Strong Earnings Growth Momentum Continues

SUCB’s FY20 performance was above both market and our expectations, as it managed to deliver earnings which were 131% and 220% of the respective forecasts. The better performance is mainly due to the surprisingly strong performance in 4QFY20, as net profit jumped 462% qoq or 2,554% yoy, supported by the strong revenue growth of 108% qoq and 147% yoy. SUCB not only benefited from higher ASPs but also higher sales volumes due to the full contribution of the recently completed Plant #12 A. Given that ASPs are still on an upward trajectory and we are expecting more capacity to come on stream in the coming months, we believe that earnings have yet to peak. SUCB has also collected customer deposits of around RM892m. Assuming SUCB only collects 30-50% as deposits, SUCB’s current orderbook is around 6-8 months.

Forecasting ASPs to Increase Till End of 2020

Similar to its peers, we are forecasting higher ASPs which will only peak by 1HCY21 before prices start to normalise, on the basis that a vaccine for COVID-19 is publicly available by then. However, we are less aggressive on our overall ASP assumption for SUCB relative to its peers, as we are only forecasting ASPs for SUCB to grow by an average of 40% yoy or 2.8% mom in FY21. We believe that as more manufacturers start to allocate capacity for spot orders, the price hike momentum for SUCB will slow, as it sells more than 50% of its gloves either through spot or distributes them directly to end buyers.

Still Positive on Outlook, Maintain BUY With a Higher TP of RM33.00

We believe that the earnings outlook for SUCB will remain positive, as the recent spike in COVID-19 cases has helped to drive demand for PPE higher, including rubber gloves. Due to the acute shortage of gloves, we are expecting ASPs to continue rising, which will improve SUCB’s operating leverage. As such, we are raising our EPS forecasts for FY21- 22E by 105%-153% to factor in the higher ASP and better margins. We have also raised our TP for SUCB to RM33.00 (cum 1 for 1 bonus issue), based on an unchanged 33x CY21E PER, while reiterating our BUY call.

Source: Affin Hwang Research - 11 Aug 2020