Posted by Goldberg > 2020-11-18 09:58 | Report Abuse

Interesting article. Good work . Thanks !

Posted by wbwanabe > 2020-11-18 10:42 | Report Abuse

Great sharing bro. Just hope ppl read through and thoroughly understand your message. I definitely agree with your views but it is sad some investing public are sentiments driven rather than focusing on Smax potentials. Well to each his own. But keep up the great work.

Posted by newbie8080 > 2020-11-18 12:51 | Report Abuse

Good write up.
Simple and on the spot.
It's really up to individual investor to decide their entry & exit.
Long term investors > 5 years normally do well.

Unlike KYY who is not an investor as he seems more like a trader which I do not recommend as there is volatility in the short term nature of glove stocks and pharma stocks.

Posted by pharker > 2020-11-18 13:23 | Report Abuse

lol..good analysis. A friend of mine who has been investing for the last 30 years offered his telescope. Just to share.

The share price of supermax in near term will be depressed. Why?

The IBs are trying to keep it ranged bound in anticipation of its inclusion in FBMKLCI component stock in Dec 2020 when a review is due. When it is included, many institution and foreign funds can then have a mandate to invest coz these funds have to follow certain rules like minimum market cap, earnings, liquidity, valuation, index linked..etc. If the price is allowed to sky rocket now, it may be less attractive for these funds in terms of valuation when they want to come in. So IBs will not earn brokerage from their corp dealing team to transact for these funds. At the same time, the IBs are slowly accumulating now at depressed price so they can sell to these funds later at higher price and make more money, in addition to their brokerage dealing fees.

What next after inclusion in FBMKLCI and becoming index linked?

Institution and foreign funds will come in, and they are not stupid either. They will make their presence known, pushing the price higher. After accumulating, they will then recommend the stock to their network of high networth private clients worldwide. They will then distribute their shares to these private clients and our local ikan bilis progressively, at the same time Supermax will announce higher Q results and IBs will assist the push by coming up with higher and higher target prices, pushing the price higher for these funds to distribute.

When will the frenzy end ?

These funds will time their distribution such that they finish their distribution close to vaccine being approved by FDA for mass use ( around March 2020, just a guess according to my friend, actual date may vary). When the announcement is made, the price will nose dive leaving the retailers who chased high and bought from them roasted.

My friend told me he has seen this pattern / cycle many times in his 30 years of investing career. Just sharing his telescope. please feel free to criticise and offer your views, no offence will be taken.

P/S : What happens if FBMKLCI inclusion is not successful ?
May be dual listing in HK, Spore as a back up plan is in the pipeline, who knows.

Posted by covid2019 > 2020-11-18 13:37 | Report Abuse

nice insight view Pharker and Omione.

Posted by vvcb > 2020-11-18 13:59 | Report Abuse

A good teaser article but very informative.

Posted by omione > 2020-11-18 15:57 | Report Abuse

@pharker, good sharing. Excellent addition. Funds managers will have to invest within the scope of their respective investment policy statement.

Posted by lamy92 > 2020-11-18 15:58 | Report Abuse

Sudah masuk perangkappp.. Cut all in

Posted by banchin65 > 2020-11-18 18:08 | Report Abuse

Uncle KYY already in Smax, no worries guys

Posted by DJoker89 > 2020-11-18 23:03 |

Post removed.Why?

Posted by LC LAU > 2020-11-18 23:05 | Report Abuse

Koon jump here and there. later he will jump back to TG.

Posted by zzzz52 > 2020-11-18 23:29 | Report Abuse

good article. kudos

Posted by ruby20 > 2020-11-19 09:30 | Report Abuse

Supporting this article with another great article in another platform.

RUBBER GLOVES - Preflop pocket aces & your opponent went all in. Do you fold?

It's now 1 week post Pfizer vaccine news. Moderna just came out with further positive news on their trial results. A successful Covid vaccination is a good thing, we should celebrate that the pandemic will soon be over. But, how soon is soon? And is it game over for rubber glove play?

In the image attached, I have updated the latest "apple to apple" peer analysis of the first and second tier rubber glove players in Malaysia (and a Thai glove manufacturer Sri Trang). It's divided in 2 parts, one is if we "simply" annualise (x4) the latest quarter, while the other is if we "simply" annualise the latest 2 quarters / half (x2) - an exercise to guesstimate earnings in 2021 & perhaps beyond. It's worth noting that last checked, ASP is still on the rise, as global second wave of COVID19 is happening so there may be a case to use simple annualisation on the past 2 quarters.

And what do we see? We see an industry average PE of around 15x. In my opinion, this is cheap. Recall, this is an industry of which
1) We have earnings visibility of around 1 year
2) There is a windfall of cash as deposit has been paid up front to secure orders
3) Demand & supply imbalance that will continue to be inelastic until at least end 2022 / early 2023
4) This will lead to prolong elevated ASP level which cause fat margin.
5) Explanation of 1-4 is sector specific and if we compare valuation of rubber glove vs some tech stocks across varying value chain - glove’s fundamental is better and is relatively undervalued.

There is a global effort to produce a vaccine as fast as possible. Even if this is the case, when’s the earliest that it can be mass produced? What about getting it administered to a sizeable portion of global population? Rubber glove is now in the phase which is the most volatile. The part where the industry will be tested against the test of time.

We are seeing money flowing from healthcare stocks to recovery play, this is all fine and well. I personally have diversified too, but how many of those recovery play can be backed by a certain visible profit and cash? At the end of the day, stock investment needs to fall back to the fundamentals and in the glove industry, we are pre-flopping a pocket Aces in terms of fundamentals. Why do you think more than 15 players in KLSE are moving into glove? Willing to take hundred millions of risks of investment? It's because they would like to have a scrape of the supernormal profit, even if it's at the tail end of 2022. Rerating of glove feels like it has already happened, but it's premature, in my opinion.

A note on glove newcomers, we see alot of daily trading volume in some of the names. Some names are being valued close to the 2nd tier names that's already operating with all relevant CE or FDA certifications. I personally don't believe its so easy to just plug and play. The profit estimates being flashed around are also taking the combination of the most bullish scenarios. If these newcomers can achieve such profit without the economies of scale, ability to manage production without downtime and at full efficiency, best ability to negotiate with clients, etc - then by the same logic you should bet on the first tiers of making even more extraordinary gains on the basis of profit per glove! What I’m saying is, if u think you are rationally investing in some of these counters, esp those that had gone up a lot in price, your money’s worth at investing in the first tier counters at current prices makes a lot more logical investment.

Stick to the blue chip in the industry. If you have zero holding of gloves, it's a good time to buy & invest some for your portfolio. There’s a room for rubber glove in any portfolio.

There should be another round of selloff this morning from Moderna vaccine news. The fear is reaching the peak. Those trading Or having 0 position can consider to enter. Personally I like RIVERSTONE. It’s trading at 12x PE & it has dual engine of growth from healthcare & cleanroom glove. Rondy.

Posted by Sales > 2020-11-19 10:07 | Report Abuse

Good article. During MCO THE PRICE IS SO HIGH. AT THIS MOMENT I WILL NOT SELL, BECAUSE DEMAND OF GLOVE IS HIGHER THAN EARLIER.

Posted by ooisw2000 > 2020-11-19 17:12 | Report Abuse

Very well written article! And makes a whole load of sense.

Posted by Mat Cendana > 2020-11-19 19:02 | Report Abuse

Quality write-up here. Reasonable-minded and considers different angles.

I feel we often tend to focus too much on the business aspects. No doubt there will still be strong demand for gloves despite the vaccines being available. And Supermax will continue to benefit from this.

However, we must also give attention to things like investors selling to lock in profits. After the excellent run price-wise where records were created, there is bound to be consolidation. Despite gloves counters arguably being the best business to be in during times like this, upside potential has now become limited.Many investors don't just look for dividends and bonuses but also capital gains, and they want to free up some capital for other opportunities. Whatever these may be. And so they liquidate a chunk of their Supermax shares, bringing the price down.

Posted by Philip ( buy what you understand) > 2020-11-20 07:20 | Report Abuse

Wonderful use of the word fusillade, I think you are the first in the history of i3 bloggers to use such a word. Commendable.

However in investment, we need to use facts and figures, and we need to look at the downside risk before looking at the upside.

What are facts.

During a normal year, and with normal competition levels, supermax makes 100 million a year. This is the benchmark.

During the onset of covid-19, due to emergency use the earnings went up to 400 million. This is the treading water mark.

During the peak period of emergency, earnings in latest quarter went to to 800 million. This is peak emergency water mark.

So using this as our risk profile, it will definitely not be going down in the short term, but will continue up.

But what are long term GUARANTEES?
1. Spot prices and demand still not last forever. All the competitors are ramping up supply. New production from new manufacturers are coming in (at, mahsing). How long will they take to get their production up? 6 months? 1 year? 2 years? How about China production, and local Brazil competitors? In the long run we will have oversupply. Guaranteed.
2. You are using 1 quarter to project how many years of earnings? Right now the asking price for supermax is 21 billion. If you are buying at this price you are accepting the possibility of earnings to exceed this valuation. So: what is already priced in at this price point? Lets say you use your 4.1 billion earnings. That would be 5 years of covid-19 with no new competitors and no production increase by the existing competitors. If you are projecting 5 years of this covid hell, I think the country itself may fall. So, what is your margin of safety? If you assume 2 more years of all time elevation before normalization:

2 billion (existing net worth) + 4.1(2021) + 4.1(2022), your base valuation would be 10 billion. Margin of safety would then day normalization demand to be 3x of normal year or 300 million earnings per year moving forward post (2023). With this safer valuation, you would be looking to pay at least 11b or rm4 per share of supermax for it to hit minimum risk profiles. Reduce your risk, increase your gains.

With the expectations of multiple vaccines from multiple countries coming out, China already starting wide spread vaccine testing in Brazil, we can look towards 2021 for the last year of supernormal profits before normalization, meaning the minimum risk threshold for supermax becomes rm3.

So you can invest at 7,8 or even 9. But you need to know the size of the bubble, and your minimum risk levels to take.

But judging the future earnings without doing comparative growth analysis of all their comptia l competitors is irrational.

Posted by Devilsadvocatee > 2020-11-20 11:02 | Report Abuse

Personally, I think you are a taad bit too optimistic. Even by picking up the highest target price of all bank analysts, namely Affin Hwang with the target price of Rm16.40 - Their estimate net profits are 2,988.7m (2021E), 1,249.3m (2022E), 1,205.9 (2023E). It's no where near the 4.1b per year you estimate.

Posted by Devilsadvocatee > 2020-11-20 11:09 | Report Abuse

https://cdn1.i3investor.com/my/files/st88k/7106_SUPERMX/pt/AFFINHWANG/7106_SUPERMX_AFFINHWANG_2020-10-28_BUY_16.40_Supermax%20%20-%20There%20Is%20Still%20More%20to%20It_181971536.pdf

Posted by omione > 2020-11-20 14:52 | Report Abuse

@Philip (buy what you understand), @Mat Cendana & @Devilsadvocatee: Thanks. I hear you.

Posted by pharker > 2020-11-25 04:23 | Report Abuse

Long term guarantees on profit visibility..how many company can give that kind of assurance ? lol

Even the best of the blue chips cannot give you that kind of guarantee.

Posted by pharker > 2020-11-25 04:31 | Report Abuse

With technology evolving at such pace, who knows may be in 5 years time they may come out with a spray coating combining nano technology and polymer science that cover your hands..thus making medical gloves obsolete..just stretching imagination.