Supermax Corporation - Two Bets for the Price of One
Date: 22/05/2020

Source : KENANGA
Stock : SUPERMX Price Target : 7.60

We are excited with Supermax prospects over the next few quarters following a 3QFY20 post result briefing. Specifically, Supermax is expected to gain from higher margins from both its gloves manufacturing and distribution channels due to abnormal demand and acute supply tightness. We expect higher margins going forward due to higher product mix skewed towards OBM distribution which accounts for 95% compared to 70% pre Covid-19 which we believe had caught us as well as market by surprise. Hence, we raised our FY20E/FY21E net profit by 6%/16%, to account for higher margins. TP is raised from RM6.60 to RM7.60 based on unchanged 26x CY21E EPS. Reiterate OP.

Dual-stream incomes from manufacturing and distribution. Specifically, Supermax is expected to gain from higher margins from both its gloves manufacturing and distribution due to abnormal demand and acute supply tightness. We expect higher margins going forward due to higher product mix skewed towards OBM distribution which accounts for 95% compared to 70% pre Covid-19 which we believe had caught us as well as the market by surprise at a time when of tight supply due to aggressive stockpiling of critical medical supplies including gloves. Typically, manufacturing OEM pre-tax margin ranges between 12% to 15% compared to Own Brand Manufacturing (OBM) pre-tax margin of 15% to 20%. In terms of demand, Supermax is getting enquiries from foreign government agencies, non-government organisations, retail and restaurants chains. Amplifying the pent-up demand, buyers are paying between 30% to 50% deposits in advance to secure glove supply and timely delivery. The delivery lead time has now risen from 45 to 60 days pre Covid-19 to 10 to 12 months currently. Case in point is Supermax’s overseas distribution centres which are experiencing fast inventory depletion from usual 4 months to within 6 weeks. Supermax expects the heightened demand to continue for the next 1 to 1.5 years. All in, we are bullish on higher-than-expected margins since ASP has been moving upwards week-on-week. As demand pick up, containers are shipping at prices higher than previous months.

Outlook. Plant 12 consists of Block A and Block B, each consisting of 8 double former lines with 2.2b pieces each (total 4.4b pieces). As of now, for Block A, its remaining 3 lines started commissioning in end March 2020 on top of the 5 lines already in commercial production. For Block B, all 8 lines are expected to be fully commissioned by 2H 2020. Upon full commercial production by 2H 2020, installed capacity will rise 13.4% to 26.2b pieces per annum.

Raised FY20E/FY211E net profit by 6%/16% after raising our pre-tax margin from 13%/14% to 16%/18%.

Undemanding FY21E PER valuation of 18x compared to expected earnings growth of 68%. Correspondingly, our TP is raised form RM6.60 to RM7.60 based on unchanged 26x CY21 revised EPS of 25.4 sen (at slightly above +2.0SD above the 5-year historical forward mean). We like Supermax because: (i) the stock is trading at an undemanding 18x FY21E EPS compared to expected earnings growth of 68%, and (ii) of its OBM model, where it can extract higher margin from distributor prices, compared to the OEM model at lower factory prices. Reiterate Outperform. Key risk to our call is longer-than-expected commercial operations of new plants.

Source: Kenanga Research - 22 May 2020

Kenanga raised TP : 7.60

@Energizer, thanks. Fantastic!

anyone have the link?

Posted by Energiser > May 22, 2020 8:43 AM | Report Abuse

CIMB latest TP is RM 7.

Basically, is your FCF used above , FCF-F or FCF-E?

DCF = RM 9,835.93 (HAI DUONG)

JAKS 30% = RM 2,950.77m

............


The above DCF value is total asset value right?

If that is the case, wouldnt you need to offset the Debt (NPV) to get the Equity portion value first - before multiplying 30% stakes of JAKS on the Equity to obtain the share price?

To calculate Cash Flow using DCF method (IRR 17% & 12% respectively)

Formula : DCF = CF1/(1+r)^1 + CF2/(1+r)^2 + ...+CFn/(1+r)^n

..................

ehome009, thanks for sharimg.

Is the above method used by MBB & PBB to determine MFCB's FCF?

Is that something standard?

Wouldnt it be more accurate using the expected outflow & inflow of cash as per the predicted timelines of the project? Meaning the 'timing' of these cash flows can differ greatly between MFCB and JHDP right?

I got the answer:
.................

Supermax has 50% of its gloves as Nitrile & 50% as Latex gloves

Comfort has 85% of its gloves as Nitrile & 15% as Latex gloves

This means Comfort has the chance of even greater margin expansion by additional up to 5% (compared to Supermax) for the qtr ending Mar 20.



Demand for gloves expected to rise

October 03, 2019

https://www.theedgemarkets.com/article/demand-gloves-expected-rise


Although we are positive on the growth in the subsequent quarters, underpinned by an uptick in nitrile demand driven by restocking activities, players like Top Glove and Supermax could continue to be plagued by competitive pressure from low-margin latex gloves (accounting for an estimated 50% of the product mix of both players), which could offset gains in the nitrile segment.

Below is extract from Supermax qtr report released today.

They stressed Nitrile raw material cost reduced 11% year on year.


................

The demand of gloves has exponentially increased this year amid the global COVID-19 pandemic. The surge in demand has resulted in a rapid rise in average selling prices (ASPs), as buyers rush to secure their supply of personal protective equipment (PPE), including medical gloves.

As a result of the outbreak, the prices of oil and raw materials have fallen. Specifically, nitrile and natural rubber material prices have decreased by 11% and 6% respectively Year-on-Year,and 7.3% and 2.5% respectively Quarter-on-Quarter.

At the same time, the USD has strengthened against the MYR, by 2.18% Year-on-Year and 0.36% Quarter-on-Quarter.

The current market conditions favour Supermax Group, and our outlook is expected to remain strong for at least the next 1.5 to 2 years, while a vaccine against COVID-19 is still under development.

Following the outbreak of COVID-19 globally, the Company is seeing the emergence of new consumers and new consumption not previously seen. The pandemic has resulted in a demand surge for PPE products, including medical gloves.

The use of these protective and infection control products has expanded beyond healthcare and frontline workers to also include the general public.

Our usual 4-month working inventory at our distribution centres were sold within 6 weeks and at higher ASPs.

Supermax Group‟s Glove Manufacturing Division is strongly positioned for this opportunity to boost earnings and expedite and its capacity expansion plans.

The Company is building 3 new factories in tandem, allowing us to capitalize on the exponential growth in demand of medical gloves.

Rf888, i never fought with market....just that market was more intelligent & informed unlike me

eat humble pie now

Posted by Rf888 > May 20, 2020 5:23 PM | Report Abuse

Probability: now how your feelings? Want fight with market?

welcome Henry8833

Comfort is 85% Nitrile gloves.

Anyone know Nitrile gloves fraction of Supermax?

Posted by Henry8833 > May 20, 2020 3:08 PM | Report Abuse

Thank you Probability for the info. We are more certain that profits will jump a lot, not only costs, but ASP, and shortage of gloves in the international market.


probability IMPORTANT INFORMATION:
......................

Nitrile Gloves - raw material is 'Acrylonitrile-Butadiene Rubber'

The below article shows the price had decline 17% compared to mid of last year.

It dropped minimum another 10% just from Feb 2020 to March 2020! Infact it dropped from 16.000 RMB/ton to 12,800 RMB/ton. Huge plunge!

This means, even Without raising price of Gloves, Nitrile gloves manufacturer margins would expand by 10% from qtr ending Mar 20 results currently.

..............

SunSirs: Acrylonitrile-Butadiene Rubber Price Fell　

April 01 2020

http://www.sunsirs.com/uk/detail_news-2073.html

Analysis Points: Today (On March 31) domestic nitrile rubber transaction was light, and the mainstream average price was 14200 RMB/ton. According to SunSirs, the domestic nitrile rubber market prices fell. Langhua nitrile N41, 3305, 3308 mainstream prices were at 11,900 RMB/ton, 12,800 RMB/ton, and 12,900 RMB/ton respectively.

Posted by infinity888 > May 20, 2020 5:09 PM | Report Abuse

next QR will be even better imagine


Posted by probability > May 20, 2020 12:54 PM | Report Abuse X

Raw material for Nitrile Gloves is purely (100%) Acrylonitrile-Butadiene Rubber.

30 July 2019 price: 17,700 RMB/ton

30 March 2020 price: 14,200 RMB/ton

30 April 2020 price: 12,000 RMB/ton

Current price (May 20'): less than 11,900 RMB/ton


http://www.sunsirs.com/uk/detail_news-2073.html

Analysis Points: Today (On March 31) domestic nitrile rubber transaction was light, and the mainstream average price was 14200 RMB/ton. According to SunSirs, the domestic nitrile rubber market prices fell. Langhua nitrile N41, 3305, 3308 mainstream prices were at 11,900 RMB/ton, 12,800 RMB/ton, and 12,900 RMB/ton respectively.

......................................


I think next qtr results will be Super-explosive.....

Rambo8333 sifu, what can i do...

i am still learning...continuously gathering information and sharing...

as available information change, our decisions change

do not scold the informer..but the information

TQ

Raw material for Nitrile Gloves is purely (100%) Acrylonitrile-Butadiene Rubber.

30 July 2019 price: 17,700 RMB/ton

30 March 2020 price: 14,200 RMB/ton

30 April 2020 price: 12,000 RMB/ton

Current price (May 20'): less than 11,900 RMB/ton


http://www.sunsirs.com/uk/detail_news-2073.html

Analysis Points: Today (On March 31) domestic nitrile rubber transaction was light, and the mainstream average price was 14200 RMB/ton. According to SunSirs, the domestic nitrile rubber market prices fell. Langhua nitrile N41, 3305, 3308 mainstream prices were at 11,900 RMB/ton, 12,800 RMB/ton, and 12,900 RMB/ton respectively.

Raw material for Nitrile Gloves is purely (100%) Acrylonitrile-Butadiene Rubber.

30 July 2019 price: 17,700 RMB/ton

30 March 2020 price: 14,200 RMB/ton

30 April 2020 price: 12,000 RMB/ton

Current price (May 20'): less than 11,900 RMB/ton


http://www.sunsirs.com/uk/detail_news-2073.html

Analysis Points: Today (On March 31) domestic nitrile rubber transaction was light, and the mainstream average price was 14200 RMB/ton. According to SunSirs, the domestic nitrile rubber market prices fell. Langhua nitrile N41, 3305, 3308 mainstream prices were at 11,900 RMB/ton, 12,800 RMB/ton, and 12,900 RMB/ton respectively.

Synthetic rubber ( raw material for Nitrile gloves ) dropped 21%

http://www.sunsirs.com/uk/prodetail-358.html

Synthetic rubber ( raw material for Nitrile gloves ) dropped 21%

http://www.sunsirs.com/uk/prodetail-358.html

Nitrile gloves will be leveraged by Latex gloves manufacturer.


Natural rubber (latex) dropped 11%

http://www.sunsirs.com/uk/prodetail-586.html

Synthetic rubber (Nitrile) dropped 21%

http://www.sunsirs.com/uk/prodetail-358.htm


.............


This means even if Nitrile gloves sold at the same price of Latex, margin difference would be 10%

Note Nitrile gloves are more useful with robust resilient application demanding a premium against latex as they are chemically more resistant to damage

Nitrile gloves will be leveraged by Latex gloves manufacturer.


Natural rubber (latex) dropped 11%

http://www.sunsirs.com/uk/prodetail-586.html

Synthetic rubber (Nitrile) dropped 21%

http://www.sunsirs.com/uk/prodetail-358.htm


.............


This means even if Nitrile gloves sold at the same price of Latex, margin expansion would be 10%

Note Nitrile gloves are more useful with robust resilient application demanding a premium against latex as they are chemically more resistant to damage

http://www.sunsirs.com/uk/prodetail-358.html

Those manufacturers who produce synthetic gloves (Nitrile) will have a double whammy margin expansion

Those manufacturers who produce synthetic gloves (Nitrile) will have a double whammy margin expansion

Butadiene-rubber is the raw material for synthetic gloves

Butadiene Rubber price dropped 21% from Feb 20 now:

http://www.sunsirs.com/uk/prodetail-358.htm

Butadiene-rubber is the raw material for synthetic gloves

Butadiene Rubber price dropped 21% from Feb 20 now:

http://www.sunsirs.com/uk/prodetail-358.html

http://www.sunsirs.com/uk/detail_news-2073.html

IMPORTANT INFORMATION:
......................

Nitrile Gloves - raw material is 'Acrylonitrile-Butadiene Rubber'

The below article shows the price had decline 17% compared to mid of last year.

It dropped minimum another 10% just from Feb 2020 to March 2020! Infact it dropped from 16.000 RMB/ton to 12,800 RMB/ton. Huge plunge!

This means, even Without raising price of Gloves, Nitrile gloves manufacturer margins would expand by 10% from qtr ending Mar 20 results currently.

IMPORTANT INFORMATION:
......................

Nitrile Gloves - raw material is 'Acrylonitrile-Butadiene Rubber'

The below article shows the price had decline 17% compared to mid of last year.

It dropped minimum another 10% just from Feb 2020 to March 2020! Infact it dropped from 16.000 RMB/ton to 12,800 RMB/ton. Huge plunge!

This means, even Without raising price of Gloves, Nitrile gloves manufacturer margins would expand by 10% from qtr ending Mar 20 results currently.

..............

SunSirs: Acrylonitrile-Butadiene Rubber Price Fell　

April 01 2020

http://www.sunsirs.com/uk/detail_news-2073.html

Analysis Points: Today (On March 31) domestic nitrile rubber transaction was light, and the mainstream average price was 14200 RMB/ton. According to SunSirs, the domestic nitrile rubber market prices fell. Langhua nitrile N41, 3305, 3308 mainstream prices were at 11,900 RMB/ton, 12,800 RMB/ton, and 12,900 RMB/ton respectively.

Even Cargo company transporting gloves raise price by 50%, why not the direct chemical suppliers for gloves?

https://www.theedgemarkets.com/article/malaysian-state-cargo-carrier-profits-soaring-demand-medical-gloves

The company raised freight rates by as much as 50% in some cases and added capacity on high-demand routes as it also saw high-volume shipments of face masks and medical gowns during the coronavirus pandemic, Chief Executive Ibrahim Mohamed Salleh told Reuters. The company declined to give profit figures.

https://klse.i3investor.com/servlets/ptres/55146.jsp

We believe we have under-estimated the potential impact from higher-than-expected ASP and margins from OBM distribution amidst the current tight supply situation for gloves with buyers aggressively stockpiling critical medical supplies. Hence, we raised our FY20E/FY21E net profit by 8%/34%, to account for higher ASPs and utilisation. TP is raised from RM4.50 to RM6.00 based on unchanged 26x CY21E EPS. Reiterate OP.

Abnormal demand leading to acute shortage and higher-thanexpected ASP. We believe we have under-estimated the potential impact from higher-than-expected ASP and margins from OBM distribution at a time when supply is tight due to aggressive stockpiling of critical medical supplies of which gloves is one. The lead time has widened further from 90 days to 150-200 days indicating that demand is far outstripping supply at least over the medium-term. We highlight that Supermax’s potentially higher margins, achieved via distribution from its Own Brand Manufacturing (OBM), is greatly under-appreciated. The potentially higher margin for Supermax’s stems from its associates’ (in Brazil, Australia, Europe and Canada) distribution channels and marketing under its own brands (such as Aurelia and Maxter)., However, we are more bullish on higher ASPs in 2H 2020 due to the present tight situation of buyers jockeying for position to secure allocation.

Outlook. Plant 12 consists of Block A and Block B, each consisting of 8 double former lines with 2.2b pieces each (total 4.4b pieces). As of now, for Block A, its remaining 3 lines started commissioning in end March 2020 on top of the 5 lines already in commercial production. For Block B, all 8 lines are expected to be fully commissioned by 2H 2020. Upon full commercial production by 2H 2020, installed capacity will rise 13.4% to 26.2b pieces per annum.

Raised FY20E/FY211E net profit by 8%/34% after raising utilisation rate from 80%/93% to 85%/97%. We raise our ASP from USD23/1,000 to USD23.80/1,000 in FY20 and from USD23/1,000 to USD32/1,000 pieces in FY21.

Undemanding PER valuation of 21x compared to 80% earnings growth. Correspondingly, our TP is raised from RM4.50 to RM6.00 based on unchanged 26x CY21 revised EPS of 23.0 sen (at slightly above +2.0 SD above 5-year historical forward mean). We like Supermax because the stock is trading at an undemanding 20x FY21 EPS compared to earnings growth of 80%. Reiterate Outperform.

Kenanga TP - RM 6

https://klse.i3investor.com/servlets/ptres/55146.jsp

https://panjiva.com/Comfort-Rubber-Gloves-Industries/59881640

Post removed.Why?

sorry..i meant 1.60! What a joke i made...

Posted by probability > May 18, 2020 9:52 PM | Report Abuse X

I think tomorrow Dayang will break 1.50 if Brent breaks US$ 35/brl

the dip in earnings due MCO earlier where services from maintenance service providers were defferred by Petronas for safety reasons will fade by then...

It will be full swing services by then

I think tomorrow Dayang will break 1.50 if Brent breaks US$ 35/brl

welcome to the O&G boat...

Posted by Boon Keng > May 18, 2020 9:40 PM | Report Abuse

Sentiment theme is changed. Now is oils and HSR theme, hot money are going there. Let glove theme rest a while before surge also ok lah.

expansion capacity is seriously limited for HARTA...only the smaller gloves making company will reap extraordinary profit as they can expand easily in terms % capacity

guys, everyone has the right to their opinions....stock market is no right and wrong...

@OTB, you have all the rights to give your recommendations

Brent almost US$35

i doubt Dayang will ignore such oil price rise...

nevermind....another 3 months is not too far away

Even LUXCHEM can grow 45%, this HARTA potential is limited.

RM 2 coming.....

Cold Eye sapot O&G.....he said spring is coming soon

https://klse.i3investor.com/blogs/coldeyed_dear_newbie/2020-05-15-story-h1507060251.jsp

looking at how fearful you all are...uncle will escape from Comfort very soon

you guys need to give confidence for uncle to stay on

please shout la..limit up coming soon.. like that!

Even riverstone barely rose 60%.....Comfort 400%...LOL!

the below is a game changer news:

https://www.thestartv.com/v/coronavirus-related-production-frenzy

still see a lot of emotional people here...very likely it will dip on Monday

Blessedinvestor intelligence is 100 times better than gemfinder - absolutely useless piece of shit...never share any info nothing

wah.. Riverstone profit rise by 50%??

nice info there..this is what i like

Posted by BlessedInvestor > May 16, 2020 10:29 PM | Report Abuse

Kossan boss said the demand for gloves likely grow 50%.


CIMB Report said ASP increase by 5% to 30%(depending on type of gloves) this quarter, another 10% to 15% next quarter. And order lead time 10-12 months. Profit will grow very significantly next few quarters till 2021. If glove companies cannot meet demand, price will go up again after increase by about 45% in next quarter vs year 2019.

Recently Riverstone (SGX-listed Malaysia's No.5 gloves producer) quarterly result showed 50% jump in profit.

i hope your judgement is correct too

Posted by lollipopkan > May 16, 2020 10:09 PM | Report Abuse

Demand rise by 50%? Who said?

Stock price rise should exactly like how much demand rise? What about selling price? What about raw material price? No factor at all?

Beginner stock market analysis looking only at demand.

from the bottom of my heart i would really love it if it can go there

Posted by Kim33 > May 16, 2020 10:09 PM | Report Abuse

@probability whatever la, I hope u still here when comfort moves toward RM3 and above.