Review

• Supermax’s reported 1HFY24 core net loss of RM31.4mn (vs. net loss of RM102.4mn in 1HFY23), which missed both ours and consensus expectations. The variance was due to weaker-than-expected sales. 

• QoQ, the loss before tax (LBT) stood at RM63.2mn as compared to a PBT of RM3.1mn in 1QFY24 due to an impairment for stocks (about RM15mn). In addition, revenue dipped 18.2% QoQ to RM145.6mn due to the weak glove demand and ASP. 

• 1HFY24 LBT improved to RM60.1mm (vs. LBT of RM98.7mn in 1HFY23) despite lower revenue of 23.5% to RM323.5mn on the back of higher interest income and better efficiency. The business environment was challenging as most customers continued to run down their heavily overstocked inventory. Impact 

• We cut FY24/25/26 earnings to -RM32/80.4/96.1mn from RM52.2/93.1/109.7mn. Note that we cut FY24 volumes and ASP by 23.8% and 12.5% to 7.7bn gloves and USD18 per 1000 gloves.

Outlook

• We believe that 2HFY24 will remain challenging as the prevailing unfavourable demand-supply dynamic would continue to plague the industry. We note that Supermax still has high volume of overpriced stocks at its overseas distribution centres and are being sold at current market prices, which is expected to dent profit margins. 

• Thereafter, management believes that a meaningful recovery will only happen in 2025. As such, we believe the group will turnaround in FY25 on the back of better operating efficiency and improving demand.

Valuation

• Maintain our Buy recommendation with a lower TP of RM1.05/share (previously RM1.10) based on an unchanged 0.6x FY25 P/B. Note that Supermax’s cash and bank balances stood at RM1.6bn, which would aid the group to weather through the tough operating environment.

Source: TA Research - 21 Feb 2024