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When JP Morgan reinstated its coverage of glove stocks, its first report on Dec 11, 2020, shook the glove stock prices to the core. Among other negative assertions, it opined that Top Glove share had a fair value of only Rm3.50, never mind that the company had just reported a record quarterly profit of Rm2.37 billion. The next trading day, the Top Glove share price fell from the previous high of Rm6.92 to the low of Rm6.50, Harta, Rm14.40 to Rm11.80, Kossan, Rm5.85 to Rm4.65, and Supermax, Rm7.85 to 6.72. The prices continued falling for more than a week.
When I published my forecast for Supermax FY21E at Rm4.1 billion in my essay on Nov 18, 2020, SUPERMAX SHARE PRICE CRUMBLES - TO SELL OR TO BUY MORE, I got brickbats from some fellow investors. I was way off the marks from the esteemed research houses. Their FY21E numbers ranged from Rm2.99 by Affin to Rm3.85 billion by TA. As you can see from the table below, after the release of Supermax’s Q2FY21A on Jan 29, most of the research houses have adjusted their numbers closer to my Rm4.1 billion, with the exception of KAF. Somehow, KAF analyst is still dwelling in its La La Land. It forecasts Supermax FY21E net profits at Rm3.54 billion. You don’t need to be a CFA to figure out how ridiculous this Rm3.54 billion number is. It is especially so now that the Q2FY21A is already announced. The KAF analyst must have this incredible, incredible telescope to look into the future that they saw Supermax accounts were rigged and would be adjusted down in time. For goodness sake, KAF. Supermax has already accumulated a profit of Rm1.85 billion in two quarters. The company has reported that the higher ASP has not yet been imputed into the earnings of Q2FY21. This is a coded statement from Supermax telling the market that they can expect Q3FY21 earnings to be higher. It is not possible that a professional stock analyst should miss this cryptic code. Coupled with increased production capacity, it is simply mindboggling to imaging that quarters 3 & 4 earnings would come in at Rm0.85 billion each? That’s essentially what KAF’s Rm3.54 billion forecast for FY21E suggests.
Why do the members of the investment public hold those research houses in such holy awe? Do they really have such an incredible telescope that can look into the future, or have the investors been so brainwashed like Donald Trump supporters that they could not tell facts from fiction? I, too, wanted to find out. So I spent time putting together the past reports published by the research houses.
Towards the end of Feb 2020, the novel coronavirus in China was already in full bloom. Yet, no research house would forecast the Supermax earnings for FY20 higher than Rm200 million or Rm0.2 billion. Even in late May 2020, they still could not foresee that the Supermax FY20 earnings would exceed Rm300 million. At that time, Supermax only had a little more than one month to complete its 2020 financial year. We all knew by now that the Supermax earnings for FY20 came in at Rm525.6 million. In the May 2020 forecasts among the research houses, the number that came closest to the actual FY20 earnings achieved by Supermax was Rm275.1 million. It was made by TA. Even that was way off the mark. If I compare forecast-to-actual using their Feb 2020 numbers, the discrepancies are even worse. The highest forecast among the research houses for the Supermax FY20 earnings in Feb 2020 was just Rm132.2 million. This was again made by TA. So, in Feb 2020, the most brilliant forecast on the Supermax FY20 earnings by these awe-inspiring research houses was off by a whopping 75% when compared to the actual achieved by Supermax. Mind you. Feb 2020 was only FOUR months away from the end of the Supermax 2020 financial year. Although TA came in top in terms of accuracy to actual, we can’t give it the victor’s crown. The best was still an abysmal forecast.
So far, I have compared the research houses’ forecasts made from late Feb and May 2020 for FY20. If they could not get their forecasts close to actual with only 1 and 4 months from the financial year closing, we can forget about their forecasts for FY21 from Feb and May 2020. Those numbers were downright embarrassing. Let’s just skip a few and dissect their forecasts for FY21 from Oct 2020 (though you can make the comparisons from the table below on your own).
After Supermax announced its Q1FY21A quarter results on Oct 27, most research houses woke up from their slumber. BIBM made the biggest adjustment to its May 2020 forecast. It raised Supermax FY21E earnings from Rm0.28 billion to Rm3.9 billion, a whopping Rm3.62 billion increase. It was the closest forecast made by the research houses in Oct 2020 to my Rm4.1 billion number. TA is not far behind at Rm3.8 billion. Others were still half-asleep. Affin forecasted just Rm2.99 billion for FY21E, and Nomura, Rm2.83 billion. These two were the sleeping beauties. The rest forecast above Rm3.0 billion.
Alright. I have done my collective service by researching the numbers. You can pour through them in the table above if you are interested. Interpret them in whichever way you choose.
The point I am making here is this: the investment bankers and their research houses do not have the monopoly of wisdom and foresight. They certainly do NOT have that incredible telescope to pierce through the future to know what the market will be. If you analyze their forecasts from Feb 2020 on, you can clearly see that their numbers were just fairy tales. Even one month before the 2020 financial year-end, most of them were still more than 80% off actual. Notice that I have not commented on their FY22E numbers. I don’t see why I should get there. Those numbers are just fairy tales. If they couldn't get their numbers right just one month before the Supermax financial closing, surely you couldn't expect any better forecasting from them that far out in time, could you? “Once beaten twice shy,” says the wise.
I have been investing very profitably for more than a decade. Never did I believe any of those opinions from the analysts. I read their reports only for factual information. I do my own research and analysis. I work with my three most trusted companions. Their names are fundamental analysis, technical analysis, and time horizon.
Forget the fairy tales propagated by the investment bankers for a moment. Let’s dissect what the facts are on the ground today.
FACTS:
Next, I shall attempt to make sense of the Supermax stock play based solely on my analysis. If you are tired of reading, you can log off here. But what I am about to share may be quite revealing based on the numbers I have crunched.
OPINIONS
I wrote earlier that I would explain why JP Morgan and the likes bought the Supermax shares thrown to them by the sellers with open arms, and why it didn’t make sense for them to want to depress the stock price (albeit, at least not forever).
You would have already figured out that the IBs are not charitable organizations out to make you rich. Heck, no. Their very existence is to make money, a lot of it. The only way for them to make lots of money in Bursa is to rocket the stock price sky-high. They can’t make much money by shorting the stocks. There is a 3-4% limit in the Bursa RSS system (have they decided whether it is 3 or 4%?). How can the IBs make huge profits with such a restriction? No, they can’t. Does it make sense to short such a highly profitable company like Supermax where its share price has already declined by close to half? No, it doesn’t make sense. Then why are they doing it? Accumulation!
Warning: What I am about to opine is not based on facts. There are just gutfeel based on years of trading, reading, and analyzing. So please read with your eyes wide open and take it with a pinch of salt (some may even say, a spoonful).
I believe the objective of the IBs is not shorting the stocks per se. They are shorting to depress the price so that they can buy the shares on the cheap. In simple terms, they are like your ordinary shopkeepers. They need to have stocks or inventory to sell to their customers for a profit. They are suppressing the price for two reasons.
One, as I said, the IBs are restocking their inventory. They need to accumulate as many shares as possible. Otherwise, it would not be worth their while to rocket up the stock price. Remember, they are in this to make them rich, not you. They are simply buying low and selling high.
Two, they need to drain the swamp. What this means is that the IBs need to get rid of as many weak players as possible. Those who want to sell, they will make them sell. I have meticulously compiled the transaction volumes from Aug 5, 2020, to Jan 27, 2021. I am publishing the numbers below as a gift if you care to consider them.
From the table below, you will find that, between the current price and Rm7.50, many investors are looking to get out. JP Morgan and the likes have been feeding the market with fake narratives. They brainwash the retail investors that the Supermax stock is overpriced. Once the price reaches close to their costs, those investors rush out to sell. Mathematically, the IBs should clear the swamp of weak players by about May/June. Coincidentally, this is when the IBs have structured their structured warrants with breakeven as high as Rm21.50. (You can refer to my article, SUPERMAX SHARE PRICE - WILL IT BE SUNK BY JP MORGAN? ) Once the stock price achieves the previous high of Rm11.95, I believe, the Supermax stock price will take off. There will be nothing to stop the IBs from powering ahead in so far as clearing the swamp is concerned.
Next, the IBs will have to create excellent narratives or storylines to bring the stock price to the stratosphere. As I have expounded in my previous writings, the glove story is too good for the IBs or market makers to pass up from making a bucket full of money.
So, what’s the takeaway for you? If you believe this story, don’t sell even after you have recovered your costs. Don’t be drained away by the market makers. If you are a strong holder, you can help reduce the number of shares the market makers need to drain by holding on to them. Liberation Days will come sooner. But don’t take my word for it. John Maynard Keynes said, “The markets can remain irrational longer than you can remain solvent.” Yes, the market price for Supermax is irrational. As I have described, there is rationality amid irrationality. Do you have the stomach and the understanding to wait it out? The peace of mind rests in the strong fundamentals of Supermax as a going-concern and the time-tested reliability that profitable companies will always trump manipulation over a reasonable time horizon. Supermax stock is super profitable. Don’t let the analysts fool you.
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Created by omione | Jan 20, 2021
Was an analyst prior to retirement. If you want to trust research houses, you must also do your own homework too! Be smart, Act smart, Think smart....No one is God here!
2021-02-05 08:47
These ANALYST REPORTS by IBs are written -under the command of their Big Bosses essentially for manipulation purposes as opposed to investment.
A ' caveat emptor' must be attached to these 'toxic' reports esp the ones by JPM.
So readers beware !
2021-02-05 10:05
I like how this is an analysis and not a pure "hardsell", valid and logic arguments that persuade you to hold the stock and not like a broken recorder that keep repeats the same thing all over again.
2021-02-05 10:44
If there is a strategy call pump and dump, then there is also a reverse strategy dump and collect.
2021-02-05 12:11
Bro, I've just finished reading all your articles as far back as Dec, have to say I'm really impressed. Keep up the good work, can't wait to learn more from your insightful analysis.
2021-02-05 22:36
Ominone. Great article and detailed analysis. Never doubted Super's potential growth and reading this after another week of sell--down is refreshing indeed. Believe it would help to calm the nerves of panic sellers too.
2021-02-05 23:08
All IBs r crooks no matter they gave high or low TP on glove...to be fair...
Cannot just blame those gave low TPs r crooks due to yr personal interest..lol
For example Affin Hwang gave TP rm100 for TG...crook or not?
2021-02-06 10:45
Excellent research and analysis, put most so call IB research in the dustbins due to ulterior motives of fooling the retail investors. Will definitely hold on to Supermax, TG and Harta shares and accumulate more on dips.
2021-02-06 10:46
Great read. All the dumb analysts should it too. People often have too much respect for these foreign IBs and their opinions. The truth is, they may have vested interests, or really, they know very little. Small brains and intellect.
2021-02-06 10:52
Per Edge- CEO Briefing - dated 5th Feb 2021-
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Regardless of what the manipulative IBs say, the GLOVE sector is still the best sector to invest in.
Here's the reason why-
Rising NPLs ( Bad bank Loans) paint bleak picture of economic recovery-
1-Impaired loans creeping up every month in 4th qtr 2020
after loan moratorium ended Sept 30
2-NPLs reached 9-year high of RM28.7b end-2020
RM24.9b in Sept 2020 , NPL rose to RM25.7b in October ,RM27.8b and RM28.7b in Nov and Dec respectively
3-Ratio of NPL to total loans rose in tandem 0.84% in Sept 2020 to 0.87% in Oct, 0.95% in Nov and 0.99% in Dec
4-Household sector, wholesale, retail, restaurants, hotels , finance, tourism, gaming will be hardest hit and take years to fully recover.
Vaccines will not eradicate the pandemic- ie not a silver bullet per WHO as new variants spread worldwide.
Latest news on FDI in Malaysia. So much for recovery stocks. Glove is still the safest.
https://www.straitstimes.com/asia/se-asia/foreign-investment-in-malays...
2021-02-06 12:09
Excellent research. Really valuable insights. You must have spent a lot of time writing it up. Thanks a million bro.
A recent article in Bloomberg, titled "When will life return to normal", calculated that it may take up to 7 years. All glove companies will be making hay for a long time!
2021-02-06 14:40
It's good to have research house around.
They bring company details when doing company interview and site visits.
These details are presented meticulously.
However, it's up to you to interpret the details rather than trusting their theories and buy/sell call.
2021-02-07 15:47
Share upward depend on demand and supply.Not all increase in profit will translate into super higher price.Depend market pattern.
2021-02-07 22:39
Trump2020
Great
2021-02-05 08:43