Review

• Supermax reported a core loss of RM19.6mn for 1QFY25 versus our profit forecast of RM48.3mn and consensus estimates of RM25.7mn for FY25. However, we consider 1Q25 performance as within expectation as 2HFY25 earnings are expected to thrive on the back of higher glove ASP and demand.

• QoQ, 1QFY25 core loss reduced to RM19.6mn versus a core loss of RM127.7mn in 4QFY24 with higher revenue of RM224.7mn (+25.1% QoQ). The better performance can be attributed to: i) higher sales orders as customers replenish its inventory and ii) improved cost efficiency.

• Supermax’s 1QFY25 slipped into core loss of RM19.6mn from a core profit of RM2.1mn in 1QFY24 despite an increase of revenue of 26.2% YoY to RM224.7mn. This was due to unfavourable sale mix as recognition of sales under its low-priced contracts would persist until the end of December 2024. Positively, gloves volumes is gradually picking up.

Impact

• We fine-tune our FY25-27 earnings projections lower by 1.1% to 3.7% after incorporating the audited FY24 accounts into our forecast.

Outlook

• Moving forward, we expect the group to turnaround by 3QFY25, driven by the higher volumes and ASP. The impending US tariffs on Chinese-made gloves are expected to benefit the group.

• The group remains committed to increasing automation and overall productivity in its factories in Malaysia. In the US, the Supermax glove plant is scheduled to begin commissioning in January 2025.

Valuation

• Maintain Buy on the stock with a TP of RM0.97/share based on 0.6x FY26 P/B. Supermax’s cash and bank balances stood at RM1.2bn, equivalent to 49.4% of market capitalisation.

Source: TA Research - 29 Nov 2024