Review

• Supermax’s reported 1QFY24 net loss of RM2.1mn (vs. net profit of RM5.7mn in 1QFY23). However, we deem the results to be within expectations as we expect stronger quarters going forward.

• Despite lower revenue of RM178.0mn (-20.3% QoQ), 1QFY24 turnaround with a PBT of RM3.1mn as compared to a LBT of RM23.0mn in 4QFY23. This turnaround was driven by lower operating costs such as natural gas prices and raw materials. In addition, the group shut down old plants and replaced old production lines, leading to increased production efficiency.

• YoY, revenue and PBT declined by 28.2% and 48.5% due to weaker volumes and ASP. The operating environment remained challenging given the oversupply situation. In addition, manufacturers in China continued to sell at cheaper prices than Malaysian players.

Impact

• No change to our earnings forecasts.

Outlook

• Moving into 2QFY24, we do not expect to see a significant improvement owing to expensive stocks at its overseas distribution. Positively, we expect the industry to show signs of recovery from 2H24 onwards as customers needs to start restock after depleting their excess inventories.

• In addition, we believe volume growth will be aided by the lifting of the Withhold Release order as Supermax is now able to resume exports to the US market, which accounts for about 25% of revenue previously.

Valuation

• Reiterate our Hold recommendation with a higher TP of RM1.10/share (previously RM0.85) based on 0.6x (from 0.5x) FY24 P/B.

• Note that Supermax’s cash and bank balances stood at RM1.8bn, which would help the group to weather through the unfavourable demand-supply dynamic.

Source: TA Research - 30 Nov 2023