Ben, thanks for your info. I would like to digest your numbers when I have time.
I just want to highlight that the Hong Kong stock market, where TG wants to list, doesn’t necessarily give a higher valuation, especially after IPO sentiment has receded. There are more than a hundred companies listed in both mainland China (A share) and Hong Kong (H share). Every single one of them is sold at a discount in HK. Many of them at half the price or even less. Big-name companies like Sinopec and SMIC are traded in HK at only 1/3 of their prices in mainland China!
Such deep discounts are not only restricted to mainland Chinese companies. I know profitable, dividend-paying companies with reasonable management being valued at close to their net cash level. The intuitional investors in Hong Kong could be very demanding and ruthless.
I also want to respond to MrInvestorOr’s comment. Many established exchanges are also manipulated, in fact even worse than Bursa.
Just to give some examples. In the US there is this perfectly legal scam called mini-tender offers. Syndicates would initiate offers that are received by blue-chip company shareholders through their brokers. Unsuspecting shareholders may accept the offers without reading the fine prints. Shareholders from Boeing, P&G, GE would have come across such scams before. The practice has continued for years without the US authorities cracking down.
Hong Kong is even worse. Many stocks are manipulated by syndicates through repeated cycles of consolidation and splits. The below articles detail one of the more famous manipulation uncovered by an activist investor. The HK regulator only acted after being shamed into it.
In HK the interest of intuitions (stock brokerages, IB, fund houses) always comes first. Retail investors are at a distant second. Despite the shortcoming of Bursa, the local stock exchange and regulator are much better in investor protection.
Note that I am not claiming other markets lack manipulation or illogical price swings. My only point is that it is logical for companies that have experienced such wild swing from their perceived fair value to want to get listed on other exchanges, hoping they would fair better there.
At the same time, it is well-publicized that the company is sitting on a cash pile of RM3.7 billion. After paying dividend of 3.8 sen per share, the cash pile would have been reduced to RM3.56 billion, or a cash balance of RM1.31 per share, or 31% of the current market price. Some have suggested that Supermax investing this money in literally any positive profit generating business would mean the current market price is nonsensical. In other words, evaluating this position is probably even easier than that of Top Glove, Hartalega, or Kossan, out of the major glove manufacturers.
I made the same calculation for Supermax as I did for Top Glove based on ASP projections of Frost & Sullivan. For Supermax, we know the company's plan is to expand its nitrile glove production capacity to 28.5725 billion pieces by the end of this year, and to 40.5725 billion pieces by the end of 2022. As the company operates based on an OBM sales model and as it partners with government agencies in some of its major target markets, I have assumed utilization rate of 90%. According to analysts' projections, the consensus profit margin for this calendar year is going to be approximately 50%, for 2022 - 35%. For these two calendar years, the net should be:
Total for the two years = RM7.272 billion, or RM2.67 per share.
In other words, the cash on hand + the profit for this and the next calendar year, contains 94.3% of the entire current market value of the company. The company must make close to no profit for its entire subsequent history for the current market valuation to make sense.
Disposed a bit first to make d price drop thn later buy back a lot at cheaper prices
EPF doing price manipulation
3,866,400
Acquired
Direct InterestName of registered holderCitigroup Nominees (Tempatan) Sdn Bhd - Employees Provident Fund BoardAddress of registered holderCitigroup Nominees (Tempatan) Sdn Bhd Level 42, Menara Citibank 165, Jalan Ampang 50450, Kuala LumpurDescription of "Others" Type of Transaction225 Feb 2021
177,500
Disposed
Direct InterestName of registered holderCitigroup Nominees (Tempatan) Sdn Bhd - Employees Provident FD BD (TEMPLETON)Address of registered holderCitigroup Nominees (Tempatan) Sdn Bhd Level 42, Menara Citibank 165, Jalan Ampang 50450, Kuala LumpurDescription of "Others" Type of
Thanks for article Ben. In my opinion the market has been pressed by the market makers either by RSS or Permitted Short Selling. IF it going to move up than the market makers must make it happen. I think they in Gloves big time. My guess is they would push it up again.
Thanks Ben for the PV analysis which are very informative. Just a clarification questions, I noticed in Supermax 31-December 2020 BS, there was Prepayment received from customers at 1,477,430 in current liability, any reason you didn't substrate this amount from the cash on ~3.7B?
Actually I just wanted to make a general comment on the sentiment in this forum, where people assume that by listing in “advanced” markets the Malaysian glove stocks could enjoy better valuation. I know given your knowledge you won’t fall for such simplistic assumptions.
This brings me to another sentiment in the forum. Some people believe that glove stock price is down because Bursa has been “manipulated”. My gut feeling is given RSS is limited to only 4%, short selling forces alone and whatever “propaganda machine” they have could not possibly have "pressed" the market down by so much and for so long. Timing wise, RSS only resumed on 1 Jan 2021, but the glove stock price downtrend has already started in Oct 2020.
In fact “downward manipulation” forces, if exist, are far weaker than the “upward manipulation” forces. Almost every analyst, except one or two odd fellows, has issued and maintained buy calls since last year. To me, if the advocacy to sell is manipulation, the advocacy to buy should also be seen as manipulation. Right now the buy calls still far outweigh the sell or even hold calls.
Just to be clear, I know you didn’t say it’s manipulated (just that the market price seems irrational). My opinion above is actually directed against some voices in this forum who blame the decline on manipulative forces.
This leads me to your central idea that given the huge cash pile, the multiple buy calls, the consensus view on the enormous profit for at least in 2021, the market valuation at a forward PE of 3.3X seems ridiculous.
While I don’t have a firm opinion on this, I would interpret this as in aggregate, the market (which is dominated by institutions instead of retail investors) doesn’t trust the analysts. After all, it’s well known that analysts often behave like a dog wagging its tail. Analysts adjust their TPs so that they don’t stray too far from the market price. The proof is while almost all analysts still maintain their buy calls, they have gradually slashed their TPs as stock prices decline. Most just make sure their TPs are 20% to 30% higher than current market prices. If analysts adjust their TPs in order to suit the market price trend, then their inputs to those TPs (projected revenue, margin ...) will be under suspect too.
The same kind of skepticism could be extended to Frost & Sullivan research, including the ASP projection we referred to in Top Glove valuation. After all, Frost & Sullivan is often engaged by companies seeking IPO, and I’ve never read an industry projection from them that undermines the IPO exercise.
Therefore, while the forward PE is at a seemingly ridiculous 3.3X, the market (again, driven by institution fund managers) has heavily discounted it. It doesn’t mean I believe the market is right. It is just how I see the market operates right now.
However, as I always believe, if one is a long-term value investor, and if one believes the company is really undervalued, one should actually welcome any irrational market prices. Over time, the market price will follow the company's earnings growth and dividends.
So, if one is confident that own valuation is right and the market is wrong, just sit back and wait for a few more quarters. The coming quarters will deliver the verdict.
Ben Tan with another great article, I know you through your gloves articles, always detailed and cited with sources not some buy/sell call like the sifus out there. Your articles always attract some other level-headed investors that provide some additional information, which makes the comments on your forum interesting to read (even though there are some clowns). What other sectors that you will be making a detailed analysis of instead of only gloves.
Even though I had already cut loss on Supermax, partially due to the fact that the company did not support the share price together with the fact that the boss is buying a luxury condominium at this depressing times (probably for his US expansion needs). I still enjoy reading your articles! Waiting more articles from you.
Benjamin Graham: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” Now market is affected by sentiments and panic selling and margin calls. Value investors and smart IBs should be happy to collect at this mega sales.
Ben Tan, appreciate the enormous effort on your research and put it into elemental words for us to read. you're brilliant and you have lots of readers, trust me.
Everyone can make all kinds of future assumptions based on one’s best available knowledge, information & judgment, we will see if market is wrong, or somebody’s wrong, sooner, if not later
1.5 pre-pandemic now after 2 for 1 bonus still >RM 12.
Posted by Bamboo Green > Mar 2, 2021 11:30 PM | Report Abuse To be fair, Supermax had been revalued by market with more than 10 folds, way more than any other big 4
Below RM3 will be a better buy. No need to rush. Blended ASP will be adjusting lower from 3rd quarter 2021 onwards to 2nd quarter 2022 from USD85/1000 to USD45/1000 Backlog orders for 2022 will reduce and normalise to between 3-4 mths from current 12mths.
I would prefer directors to reward shareholders by returning the excess cash as dividends than to go fight short sellers by doing share buybacks.
If your stock is really quality, the short sellers will tergigit diri sendiri, because other investors will come eat up their selling, knowing that this is a dividend/cash cow stock.
Well done Ben for your always fact driven and neutral writings. Keep it up as rarely see writer in i3 forum try as hard to keep it this way. Not many have the knowledge and time to gather those information for them as a guide to make their own investment decision. Nobody will always right. I hope more people entering the forum, particularly this one will practice constructive argument instead of emotional venting which serve no good for anyone.
HI BEN, I ENJOYED YOUR MEANINGFUL ESSAY ON SUPERMAX AND MORE. NO DOUBT STANLEY AND HIS TEAM WILL TAKE NOTE. LIKE IT OR NOT A STRONG SUPPORT GROUP IS FORMING ABOUT YOUR BLOG AND FOR SURE THERE WILL BE BETTER CONVERSATIONS. WE MUST NOT OVERLOOK THE PSYCHOLOGY OF THE RETAILERS ESPECIALLY WHAT CAN STARTLE THEM AND CAUSE THEM TO PANIC AND ACT IRRATIONALLY. I SUSPECT WHAT IS IN THE MEDIA, READ AND REGURGITATED EARNESTLY OR WITH A SINISTER INTENTION. THERE WERE TWO SCRIBES, ONE WITH THE STAR AND THE OTHER WITH THE EDGE, WHO IN THE LAST WEEK APPEARED TO OVERSTRETCH THEIR NON-FINANCIAL BACKGROUNDS. WHEN OPINIONS WHICH ARE DOUBTFUL GO UNCHALLENGED THEY CAN SPIN OUT OF CONTROL. LISTING ON ANOTHER BOURSE MAY NOT BE THE ANSWER UNLESS PRODUCTION IS TAKEN NEARER THE CONSUMERS LIKE SUPERMAX. IF THERE IS MUCH DISCOMFORT LOCALLY, I DOUBT IT IS ABOUT NUMBERS THAT WE CAN WORK ON, BUT RULES WHICH ARE OUTWITH OUR IMMEDIATE CONTROL, BUT WHICH CAN BE WORKED ON DILIGENTLY.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
CuriousGuy
998 posts
Posted by CuriousGuy > 2021-03-02 14:41 | Report Abuse
I think theres a concerted effort from foreign funds pushing supermax down....lol