The value of a business, or what the fair value of a stock is worth, is not precise, but it doesn't mean it can be anything either. If it can be anything, what's the point of reading financial statement right. So it has to be a range. The width of the range depends on the range of future outcome of the business i.e the more uncertainty a business, the wider the range has to be.

Now, if I have $100 bil hypothetically, would I spend $40 bil to own Supermax (SPM) in its entirety? Let's reverse engineer this. To pay something $40 bil, I need to be sure I'll get more than $40 bil out of it for the next 10, 20 years (the reason of investing). So SPM got to produce enough cash flow to entice me to willing to spend $40 bil. How much is that? We don't have to precise, but safe to say something like $2-5 bil annual cash flow. That's a good range. I don't pull that from thin air, because if one is willing to accept less than $2 bil in cash flow, that you are stupid. Simply for the fact that fixed interest is 2.5%~, only idiot would be willing to invest in stock for a yield of less than 5%.

We are one step closer; to pay $40 bil for a business, it need to at least produce $2 bil cash flow or earnings per annum. And I mean $2 bil starting right now, not some distance future. If SPM can only start produce $2 bil p.a 5 years later, then I'll won't want to pay $40 bil, but less. So question is can SPM produce $2 bil starting tomorrow? Well for a company that even if you extrapolate the most recent stellar quarter result to get $300 mil, $2 bil is a shit stretch. But of course you say, SPM is in supergrowth mode in this pandemic era! Margin is expanding, volume is growing. Maybe $2 bil is possible. So simple logic, to go from $300 mil to $2 bil, 700% increase, SPM got a few levers to pull. Volume increase, sure but that takes time i.e install machines, ramp up production etc, you don't increase volume by 700% with a flip of a button. Margin expansion! Yes, if something that has 10% profit margin, just expand that to 50% profit margin. Done. But that neglect 2 things: Price increase means less demand (basic economics); and volume ramp up (by competitions) means margin expansion is only a short-term solution. This is where the logic breaks down. I can't see how SPM can go from $300 mil to $2 bil overnight. I never come across business that can do that after studying businesses for 8 years.

Cash flow or earnings growth have to come from reinvestment (you don't get growth from the sky). So I mean, SPM need to reinvest all $300 mil in earnings to grow at 100% revenue yoy. Assuming a return of 100%. That will still take 3 years just for SPM to get to $2 bil cash flow. This mental thinking isn't hard to do. And I have no clue how SPM can get to $2 bil in the shortest time, hence paying $40 bil is close to praying there is a greater fool willing to pay you even more to buy the business from you.

P/S: If you intend to write how Supermax's share price has gone up to show that you're right and I'm wrong, please save your time. Relying on the share price proves how little you can think.

@cjp74132rn you're right. The fact is that you don't need those terminology like NPV, DCF, CoC to make wise decision. Those are 'tools' to aid your thinking, not something to limit your mindset.

Surprising that you mentioned about investing is all about reading financial statement, extrapolating etc, so the question is where is your edge? Is there something you know that others like freetospeak don't? And if there isn't, what makes you think you deserve to earn above-average return over the long-term?

I belong to the 'I don't know' camp. Is Supermax going go earn $3.2 bil like what freetospeak confidently tells everyone? I don't know. All I know is there's no margin of safety at this price, not even when it is at $7. And in investing, being right in magnitude matters more than right on frequency.

I don't disagree that there's no precise measurement of value, although calling it an 'opinion' is a long stretch. But there's a big difference between not having a precise measurement vs any measurement would do.

Not having precise measurement just mean something is hard to measure, it doesn't suddenly mean that thing can take on any value, agree? Just like absence of evidence is not evidence of absence.

While we are at this, even if you truly believe because something cannot be precisely measured, therefore 'any value is possible', then how the hell you're going to know if you're not wrong? and if you don't have the ability to know whether you're right or wrong because any value is possible, how are you guarantee you can make money long-term?

Probability, I've no idea what you're going at with my old comment. But you're really not thinking in probabilistic term and expected value. But what can I say.

No idea what you're talking about freetospeak. But $6 bil is fine with me. Like I mean Topglove can't even hit $1.5 bil profit even if you extrapolate their earnings. So I would propose Topglove to acquire Supermax through an issuance of shares that value Supermax at $60 bil.

It is a win-win considering Topglove just need to dilute their share by 50% but get to increase their earnings by 600%.

Freetospeak you should be the analyst the present to Mr Lim on this earnings accretive acquisition man.

Yes of course. Now we are closer to reality. Going towards $100-120 bil market cap. And btw, when discussing this stuff, don't confuse between value and price.

Of course possible. Anything you can sell is always possible. People thrive on imagination. It is what makes us human.

Sorry my bad. I just get excited considering the mouth watering profit that is proclaimed. My bad. Rationality is not the opposite of emotionless. Rationality just mean self control.

I like your statement, Supermax defy the law of physic kan? The bigger they get, the faster they become. Haha.

Yes of course. Even easier to go from $3.2 to $6 bil, let's make it $6 bil. $6 bil x 20x = $120 bil, shit still got 400% upside. Like just sapu everything la.

freetospeak predict $3.2 bil profit. You read that right, $3.2 bil profit. CB, mortgage your house, and every stock and sapu Supermax now!

$3.2 bil profit can even enter Fortune 500 already, something no Malaysian company has ever done, not even Public Bank. Imagine how much Supermax would worth if it enter Fortune 500 or one of the most admired global company. Easily TP100.

When someone can paddle any shit and everyone else would gladly eat it

lol $3.2 bil PAT per annum. Your estimation doesn't grow to the sky. It is the sky

I like Naval Rvikant's saying that when someone said he is honest, that mean he isn't. Similarly, when someone is saying "I want to be very safe and conservative", you know he isn't.

@seekingalpha - Calling yourself a value investor doesn't make you one.

the problem isn't about whether Supermax is gonna make $100 mil or $300 mil next quarter or the qtr after. The question is how sustainable is it at this level of earnings and margin, and what is the normalised earnings? Sure, if Supermax can sustain $300 mil per quarter or $1.2 bil per year, that could perfectly justify current valuation of $20 bil. But if they can't, then where does the $20 bil market cap leave you, that is the risk?

Another thing to remember is there is a 'rush' of stockpiling gloves throughout the entire supply chain from manufacturers like Supermax all the way to end users i.e hospitals. That is why there is such a margin expansion. No one know how much 'backlog' orders are in the supply chain now. Everyone is afraid of not getting their orders so natural behavior tells you to 'over-order' just to be safe, hence creating a massive backlog from distributors, wholesalers to manufacturers. That is why you see all manufacturers ramp up productions to meet the demand. However, when COVID settles down (a possibility that can happen even without a vaccine), how long would it takes to clear out those stockpile coming from the backlog, that is a big thing. So what you can possibly see is Supermax has such an outstanding quarter after quarter of $300 mil and suddenly revenue collapse when everyone realised there are too much stockpile that they have to stop ordering from Supermax or any other manufacturers just to clear them off.

You don't get rational discussion out of euphoria. As Ben Franklin said, appeal to interest, not reasoning. And it isn't in the majority's interest who, either have made so much money on gloves stocks, or just getting into the game to hear information that goes against their interest.

if there is anyone that believe this kind of shit then he is not thinking straight

@CharlesT everyone should know that to outperform the market, meaning any return higher than what KLCI can give, which is what everyone wants and what everyone in this forum is trying to do (including me), requires you being right and non-consensus.

Now is it a non-consensus that gloves counters are going to do well in the near term future (revenue and profit wise), I don't think so.

The fact that it is a consensus that almost everyone believe bears a queston, how do you outperform the market when the crowd agrees with you and bid up the price to reflect your view?

I think one thing many ppl don't realise is stock market is a pari-mutuel system. It is not about betting the horse that will win, but the horse where the odds are mispriced. Being right (Supermax will do well) doesn't mean you will win big bro. It is like if I bet on soccer games, and I always bet the top 3 teams that always wins in most games (i.e Manchester city, Liverpool etc), do I end up making money? Hell no, because everyone knows they are likely to win.

There's a lot of finger pointing at IB when retail investors lose money. I find this ironic because if you are happy to engage in this greater fool theory of thinking you can make quick profit, don't go around blaming when others do the same to you.

The funniest is ppl buying for a quick profit talks about fundamentals? As if you want to make a quick profit yet you preach others to focus on fundamentals how Supermax will be so great in the next few years.

Please have faith in Freetospeak, if he tells you Supermax is worth RM27 because of every margin from top to bottom expansion, then it must be true.

@CharlesT you know I don't twist words. I wonder who wrote the sentence below

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if 3 x of normal asp = equal to 20 x normal profit = 30 x 20 = 600 million profit = 2.4 bill profit for the year = eps rm1.85 =pe 20 = rm 37.

@freetospeak good on you. Sure 100% in 1 year is better than 200% in 10 years. That's first level thinking right? You see, if you can repeat that performance year in year out for 10 years, I mean you will make Jim Simons' track record from Renaissance Technologies (https://en.wikipedia.org/wiki/Jim_Simons_(mathematician)) looks embarrassing. You'll be billionaire in no time. And I can tell you've been investing for at least a few years now. If you're that good, you should be running your hedge fund right now, why selling gloves to make few K profit? Don't waste your time, do the big things, you talk so ambitious, do it. I'm confident you can do 100-200% a year and compound that for 10 years.

Supermax TP $37? You should bet your entire hedge fund capital and your parents money on Supermax. You'll make yourself look stupid if you didn't.

@freetospeak good on you. Sure 100% in 1 year is better than 200% in 10 years. That's first level thinking right? You see, if you can repeat that performance year in year out for 10 years, I mean you will make Jim Simons' track record from Renaissance Technologies (https://en.wikipedia.org/wiki/Jim_Simons_(mathematician)) looks embarrassing. You'll be billionaire in no time. And I can tell you've been investing for at least a few years now. If you're that good, you should be running your hedge fund right now, why selling gloves to make few K profit? Don't waste your time, do the big things, you talk so ambitious, do it. I'm confident you can do 100-200% a year and compound that for 10 years.

Supermax TP $37? You should bet your entire hedge fund capital and your parents money on Supermax. You'll make yourself look stupid if you didn't.

I believe past data and future as well. But no one has convinced me Supermax can grow 23% p.a for 10 years.

@cjp74132rn thanks for the reply.

1. Why does a change of price between 52 weeks high/low would debunk DCF valuation? One tells you the price, another tells you the value.

2. No institution that will value their portfolio based NPV/DCF. Does that mean if they value their portfolio based on astrology, you will follow suit? And why worry about what institution use? I am asking you if the current value of a stock comes from all of its discounted future cash flow? If it is not, then what is it? And if there are many factors (i.e interest rates, Govt fiscal/monetary policies, soveirign risk, geopolitical tensions, asset allocation) that affects valuation to make DCF inaccurate, would using EPS x PE, which is what you use, a heuristic that ignore all those factors you mentioned, make the valuation more accurate?

3. I think you got confused. Supermax can reach $100 bil. Anything can happen. I am just saying Supermax isn't worth $10 bil. You have to understand the difference between price and value.

4. 10 Year valuation. I didn't use 10 PE. The value of a business comes from its ongoing value + terminal value. The next 10 years is its ongoing value; 11th year to n year is the terminal value. Terminal value typically make up 50-70% of the market cap. So to be conservative, I assume terminal value make up 50%; ongoing value over the next 10 years make up the other 50%. So 50% market cap is $5 bil. And Supermax's normalised earnings is $100 mil p.a, they need to grow 23-30% p.a for 10 years to justify that $5 bil. What is the probability of Supermax achieving that growth rate?

5. And I do buy high PE stocks (i.e Ferrari at 50 P/E). And that's because Ferrari's ROE is 50-60%. If Supermax can get such a ROE, I'll consider investing in Supermax at this price.

6. Cost of capital, discount rate, opportunity cost, whatever you call it. You don't have to believe it, but it is there. If you buy a stock, you can't use that money to buy another, that's opportunity cost. I used 10% just for convenience. You can use a lower discount rate i.e 8% because of low interest rate environment to justify higher P/E.

7. Pricing power? I've no doubt glove manufacturer can hike price in near term due to supply constrain which lead to higher profit margin and profit. But that's not pricing power. Just like you don't call the hair saloon to have pricing power when they hike the price per head during CNY. And how sustainable is this? Using baseline profit margin, shouldn't you assign a higher probability that profit margin will mean revert than to stay at current trend for next 10 years?

8. Yes I have read the notes from Raymond Choo from Kenanga. Again he uses EPS x PE (that must be why everyone is using that). But like I said, no matter how much landscape is change, I still think the probability of Supermax growing at 23-30% for 10 years is close to lunacy.

9. That's good that you bought it at $1+. Which there won't be any discussion we currently have. And do I think Supermax is worth $10 bil? That's a no. And of course Supermax can continue to hit $50 bil due to euphoria.

10. And think again about broker report, is their incentive more about valuing a stock in a prudent manner so they can provide a valued judgment or is it about encourage trading for commission? Think about it. Have you ever seen an IB analyst get fired for over optimistic TP? That's more insightful than whatever analysis or TP he tells you.

And you mean those so called sifus that throw current quarter EPS x whatever-PE-that-shiok-everyone = that-FOMO-TP-that-one-can't-think-rationally?

@xdssaq I didn't know got any sifu correct me with my calculation. No one can come up with $700 mil profit for Supermax. IF you can, I appreciate you tell me lol

Congratulation to Rubberex, who has reached the 'Unicorn' status valued at over $1 bil dollar. And people is willing to buy a $1 bil dollar company that has $10 mil in profit.

A normal phenomenon I notice is when the price of top tier companies i.e Harta, Topglove etc had a good run up, those who felt that they have 'missed out' or FOMO started to pile into 2nd-3rd tier companies like Supermax, Comfort, Rubberex, even into warrant, when yes, one can probably make more money in lower tiered companies by catching the trend, they are unaware that the risk of investing in these poor quality businesses often outweigh the potential reward. It is like picking a nickel in front of a steamroller.

last qtr i sold rm450 worth or gloves at price 1, my profit is 70. cost is 380. this qtr i sold 675 becoz now ppl willing to pay 50% more for the same glove. but my cost is the same as last qtr. now my profit is 295. expecting this carry on for next 4 qtr .so my profit for the year is 1180. rick yeo..hope u ponder on the power of margin on profit.

i am still selling same qty of goods. but my profit jumps from 70 to 295.

***

Okay sure profit margin expand from 15% to 58%, let's see, Lets assume, Supermax achieve 50% profit margin before the margin taper off slowly until it reaches only 20% profit margin by 2030, that will achieve NPV of $6 bil. Who in the sane mind believe in that projection? You?

I should email Ferrari so they can acquire Supermax because Supermax can earn more selling a piece of glove than Ferrari selling one SF90 Stradale. Like why sell Ferrari cars when you can make more money selling gloves lol.

目前supermx的营业额是RM 447m, 以快速的算法 RM 447m / USD 25 (最新价格) X USD 70 (最新价格) = RM 1,252m !

也就是说 多出来的RM 805m就是盈利。单纯这个盈利, EPS 都已经是 59 cents

59 cents X 4 =RM 2.36 一股EPS . PE 20 = RM 47

***

I almost fall off my chair. You can explain how ASP can reach USD$44 or whatever you want to put, but you still can't put together a very structurally sound explanation, how this is sustainable and how can Supermax can achieve a cumulative $8 bil in profit over the next 10 years.

And make no mistake, I have nothing against punting. IF you want to punt, sure why not. But please don't stretch everything that might be true over the next 6 month to as if they will be true for the next 10 years. Because as I said you will break the law of economics and maths.

Lol TP47. So shiok $50 bil market cap. When someone annualised one qtr profit and x a P/E multiples to justify a higher share price, it immediately tells me he knows the price of something but the value of nothing.

@piratebillis Sure touching USD44, how sustainable is that? For the next 10 years? Even after Supermax and every glove counter increase their capacity by 50% in the near-term?

@cjp74132rn do you agree the present value of a business is worth all of its future cash flow until judgement day? Agree with this statement? If not, we can stop here. Because that is the fundamental.

If you agree, then as my calculation show, Supermax has to earn on average $700 mil every year for the next 10 years to justify current $10 bil market cap. I don't pluck $700 mil out of thin air. And I explained my calculation: next 10 years accounted for 50% of market cap, $5 bil. Using 10% cost of capital, that works out Supermax needs to earn $700 mil on average per year. Or put it differently, using Supermax historical $100 mil profit, Supermax needs to achieve CAGR 40% every year for next 10 years just to do that; if you use $200 mil, Supermax still need to grow CAGR 27% consistently for 10 years. What's the probability of that? Using baseline information, how many company in the world, given the size of Supermax, can grow 27% CAGR for 10 years?

And tie this back to what you mentioned Supermax growing capacity to $38 bil pieces. Okay assume they hit $38 bil pieces by 2022, which is 50% higher than current. Assume revenue increase by 50% from the current $1.5 bil approx to $2.3 bil, throw it a 20% margin, the earning is only $460 mil, which is 35% less from the $700 mil a year required to justify current valuation?

I am trying hard to break the law of economics and maths by giving the highest blue sky scenario to Supermax, but I still can't get $700 mil a year.

COVID changing the world order and glove industry forever, sure. Even if that's true, you have to back it with number how the hell is Supermax going to get to $700 mil or earn a cumulative of $7-9 bil in profit over next 10 years (which discounted back at 10% to current $5 bil market cap; I put it in a range because the timing of the profit affects valuation).

Supermax either need a combination of abnormal margin, and abnormal ROC in order to grow revenue abnormally high at 27% CAGR. And I still can't see how that can happen even breaking the law of maths.

@freetospeak don't get me wrong, I never say Supermax are not allowed to rise more than $2. But I definitely encourage you to support your evidence that Supermax can earn cumulative $2 bil profit over the next 2 years.

Finally someone who can explain how Supermax can go from historical profit of $100 mil to $1 bil profit in a year or two. Jesus. $1 bil profit a year, Supermax would easily worth $30 bil bro.

I'll wait for you to show me your calculation.

Let me make it easy for you. How much capacity Supermax has right now? 22 bil pieces? Make it 25 bil. So ASP of USD$22 per 1,000 pieces, that's MYR$2.2 bil. What's the profit margin you want to give? 20% happy? That's 440 mil profit. This is assume blue sky scenario and I haven't include whatever increase in expenses and tax. But still $600 mil short of $1 bil, how? Can Supermax earn the other $1.4 bil in the 2nd year? How? My math isn't as good as you, show me please.

I always welcome sky high TP if someone can back it with maths.

And another thing, whether other value investors miss the super bull I don't know. And since your argument seems to be that don't rely too much on historical data, I think this is the perfect opportunity for you to explain how Supermax can generate $700 mil a year based on your superior future magic ball forecast. Up for the challenge? You're welcome to quote whatever is in the reports you read.

You see hedge fund managers that value Tesla at $1500 can justify their reason with numbers. So I'll wait for yours, because you're smart and you didn't miss the super bull right? I'm sure you saw Covid coming as well and sell everything before March.

CharlesT - I don't need to read the reports, I only need to know what is baked into the $10 bil valuation means for Supermax. And if you can't explain how Supermax can generate $700 mil earnings per year or grow to that amount within next 2-3 years, what's the point of reading reports?

@cjp74132rn fair enough. So if I get this right, you're saying if demand remain elevated, Supermax is going to worth >$10 bil; but if it return to pre-Covid level, it is worth <$2 bil?

To add $8 bil market cap to a company, how much would a business need to grow its earnings? Assuming 50% of its value is derived from the next 10 years cash flow, that would be $4 bil. A quick DCF tells you cumulative earnings/cash flow for the next 10 years need to increased by $6 bil to justify that valuation.

If you use Supermax historical earnings of $80-90 mil a year and historical ROC of 10%, it won't hit even a fraction of that $6 bil in cumulative earnings. Even if you use the most currently quarter earning of $70 mil, annualised that, ask Mr Thai not to pay a cent of dividend, assume it can earn ROC of Harta of 15% for the next 10 years, it will just barely hit that $6 bil cumulative earnings.

Or put it another way, to justify Supermax current valuation, and assume next 10 years make up to 50% of its current valuation, Supermax needs to produce $700 mil in earnings, on average for every of those 10 years. I mean, Harta's current earnings is only half of that. How long do you think Harta can double its earnings? 3 years? 5 years? And the market is expecting Supermax to grow earnings by a factor of 7 in the next 2-3 years? Where does Supermax find that much capital to grow that fast, assume it can (ignoring the law of economics and physics)?

@targeted. You're partially right. I didn't learn about speculation. Hence I didn't buy. What's wrong with my opinion? Like do I have to say what everyone says? Because my opinion rub against your face?

Okay fair enough, so everyone is saying Supermax is not worth more or less about $2 bil a year ago (that's what the market price of $1.50 implies) so there's no interest. But since the COVID came, it become a huge opportunity, to the point that everyone think Supermax is actually worth more than $10 bil. Wow.

I am really curious if everyone is in for the rally or long-term? Especially those that quote how shrewd Mr Thai is in marketing, are you guys holding Supermax for the next 10 years regardless of how the share price gonna do? Because you talk like business owner. Or you're just holding as long as the music keeps playing?

All these wonderful stuff of Supermax like high margin, closer distance, whatever competitive advantage and what not, I'm sure they're already there 6 months ago, 12 months ago. They didn't manifest over the past 2 weeks.

So the question is why only everyone mention about how good about Supermax now? Why not 6 months, or a year ago? Because Supermax would be a lot more wonderful back then compared to now considering how dirt 'cheap' it was before the rally.

So, are all these competitive advantage being 'discovered' after the rally in order to explain the rally? or everyone knew it all along but didn't buy Supermax until the price started to rally? Discovering how good Supermax is after the price run up is an obvious confirmation bias.

Well, you're pretty much right. It is not consistency, Supermax didn't do anything different a month ago compared to today. Supermax didn't discover a new gold mine, developed a new AI, so market cap between <$4 bil a month ago and $10 bil now tells me either a month ago everyone is very wrong about Supermax and now they suddenly wake up, or it tells me most are right a month ago, and now they're verging on the opposite end.

1. Why is PE 25 fair? If PE 25 is fair, then when pandemic is over, is it still fair or what's fair? Why 'fair' can't be PE 10, 15, 16.13?

2. What's Supermax's ROC?

3. Annualised EPS is $0.416. What's the normalised EPS? Normalised in the sense that all glove manufacturers ramp up so much capacity to earn high profit and buyers buying to stock up until and oversupply situation that when pandemic is over or become less critical, those backlog from consumers mean all these 'front-loading' is likely to lead to a profit collapse down the line?

4. When capacity gets ramp up to meet demand, Supermax obviously going to steal market share from big four to improve scale advantage, how sustainable is the current ASP?

5. Ramping up obviously incur a large amount of one-off cost, and companies become less efficient during 'good' times, which often lead to poor cost control, are you sure what you're calculating is conservative?

"we believe in our own valuation" lol. Sure, why use Harta as benchmark, Supermax is better than Harta, how about try $100 bil valuation. Still very cheap at $100 bil, only 10%of Google, omg that's a screaming buy

@YTH888 trust me, you're not being careful, your valuation is insane. Benchmarking Harta is even more insane.

When something goes to the skies, anything can be justified, even P/E 100; when things drop like a rock, even P/E 3 feels risky. Hence, what's safe or risky is not the P/E itself, but the person's altitude and approach to the market.

Nothing sedates risk like a bullish thesis and rising share price.

Once it hit 7.00++, it never goes back to RM6.00.

Once it hit 8.00++, it never goes back to RM7.00

***

I heard this kind of saying over and over again. Remember Hengyuan, they say once it pass $20, it never goes back.

When someone say stuff like this, be very very careful.

Well, how do IBs make money? Commission, not the accuracy of their TP. Incentive is a superpower.

And under the context of confirmation bias, IB's TP is irrelevant. IF they provide a higher TP, the crowd use to rationalise their decision; if their TP is lower, the crowd rationalise that as an act to get the market to sell down so they can accumulate.

The boom of glove counters reminiscent the bust of the past

https://klse.i3investor.com/blogs/JTYeo/2020-05-21-story-h1507774023-The_boom_of_glove_counters_reminiscent_the_bust_of_the_past.jsp

Steady ppl here, major shareholders are busy dumping shares, while gamblers busy goreng it up.

Thanks for putting everything into my mouth Philip. You're such a physic that you know that I think I am better than average Malaysian. I didn't even know that! Thanks for telling me. Despite the fact that I don't like to boast how much I make unlike some Malaysian.

Omg how did you know I jump from job to job. Thanks for sharing my linkedin btw, so ethical. Yea I do the competition to shut your trap. I don't know how old you're Philip. But 20 years competition won't make sense because probabilistically and statistically, you're more likely not to be around than I'm. No hard feeling or cursing. Just stats. So to make sure you have the last laugh, 10 years is reasonable. I don't have millions but I still think for others.