Review

• Supermax’s FY23 net loss of RM149.4mn was within our loss expectation at 95% but below consensus estimates at 93%.

• 4Q23 net loss reduced to RM7.2mn as compared to a net loss of RM39.9mn in 3Q23. We attribute the lower losses to higher revenue of 27.1% to RM223.4mn on the back of higher ASP and volumes. As such, PAT margin improved 19.5 pp QoQ on the back of improving economies of scale.

• FY23 loss before tax stood at RM196.7mn as compared to a profit before tax of RM1.1bn due to the lower ASP and volumes amid the prevailing oversupply situation. Moreover, margins were affected by the higher natural gas and electricity costs.

Impact

• We lower FY24/25 earnings estimates by 2.4/2.6% after incorporating FY23 audited numbers into our model.

Outlook

• Moving into 1QFY24, we expect nitrile glove ASP to hover at USD18-19 per 1000 gloves. We expect the industry would start to show signs of recovery from 2Q24 onwards as customers are expected to restock after depleting their excess inventories.

• Supermax will continue to engage with the US CBP to demonstrate its improving human resource policies including actively reaching out to all former workers for the purposed of remediation.

Valuation

• In terms of asset quality, Supermax’s cash and bank balances stood at RM2.2bn, which will help the group to weather through the unfavourable demand-supply dynamic.

• We maintain our Hold recommendation with a TP of RM0.85/share based on 0.5x FY24 P/B.

Source: TA Research - 30 Aug 2023