• Supermax held a 3QFY21 results briefing to sell-side analysts on 6th May. Profit increased to RM1.08bn mainly due to higher ASP. However, volume was impacted by plant closures due to Covid-19 cases.
   
• Global demand for glove expected to remain strong but ASP anticipated to gradually decline from its March quarter peak due to increasing competition moving forward.
   
• Supermax declared 13sen special DPS, bringing YTD DPS of 16.8sen and committed to declare more dividends. We estimate dividend yield of 8.6% FY21f.

• We have revised down our earnings for FY21f/FY22f by 16%/22% as we lower our ASP and utilization rate assumptions. TP reduce to RM7.30, implying PER 12x on CY22 EPS. Maintain BUY.

Key takeaways from Supermax’s 3QFY21 results briefing

• Supermax’s 3QFY21 core net profit of RM1.08bn (+2% qoq, +1,420% yoy) was mainly due to higher ASP. 3QFY21 volume was impacted by plant closures due to Covid-19 cases which the losses are bigger than expected earlier (entire production loss in February). Revenue loss during the quarter is about RM313m (c.14% loss). Production is now back to normal.

• Overall, management expected global demand to remain strong and will continue for the next 1.5 to 2 years. However, the increasing competition in the market will push prices on a downward trajectory.

• ASP have reach a peak in the March quarter.
  • Supermax’s ASP starting to see a drop in 2Q2021 which is earlier than our expectation in 2H2021.
  • Blended ASP still rose in 3QFY21 = Jan: USD84.61 (+1.3% mom), Feb: USD87.65 (+3.6% mom), March: USD89.2 (+1.7% mom).
  • Going forward, nitrile ASP (factory level) for April - June is about USD80-110, while July onward deteriorating to about USD70.
  • Currently, spot prices are lower than contracted prices and Supermax’s current spot prices for shipment in June is slipping down to USD70-80. As Supermax mostly sells its products under contract basis (its spot <5% of total production), it is expecting that blended ASP will not be significantly impacted in at least next 2 quarters.
• Large NBR capacity are seen coming from China and they are selling the glove at aggressively lower prices. This is believed to be the main reason for the downward trend of nitrile glove prices in the market.

• Next quarters will see new capacity coming from plants 13 & 14. Overall, Supermax expansion plan will add capacity of 22.25bn pcs p.a. making a total of 48.42bn pcs p.a. by end-2022.

• The company is in net cash position of RM3.7bn. They have declared a special DPS of 13sen in 3QFY21, bringing a total YTD DPS of 16.8sen.

• The Board has decided to put Supermax’s Singapore secondary listing on hold as the timing is considered not right.

Strong global demand but ASP trending downward

Moving forward, we believe ASP will see a gradual decline as glove urgency expected to fade due to increasing percentage of global vaccinations and rising competition from existing and newcomers’ capacity which will mostly be up in 2H21 onwards. Zooming in on Supermax, its ASP could be slightly higher than most of its peers due to its OBM business model and lesser cancellation of orders as most of its sales are to contractual direct customers rather than middlemen/ importers. Nonetheless, we hold the view that long term glove demand postCovid19 to remain stable due to increase hygiene awareness and structural changes in glove usage.

Earnings revision

We revised down our earnings forecast for FY21f/FY22f by 16%/22% after imputing lower utilisation rate and lower ASP assumptions. Lower utilisation rate of c.80-85% due to temporary plant closures and normalising demand and supply assumptions. Our blended ASP estimate for FY21f/22f now reduce to US$78/US$50 per 1k pcs of gloves.

Maintain BUY with lower TP of RM7.30

Our new TP is lowered to RM7.30 (from RM10.20) based on PER 12x (5 yrs pre-covid19 historical forward mean) pegged to CY22f EPS of 61sen. We reiterate our BUY recommendation on Supermax as valuation remains attractive at current level. Share price has fallen 58% from its Aug 2020 peak and currently trading at FY21f/FY22f PER of 3.5x/ 6.1x. Dividend yield is estimated at 8.6% FY21f and 5% FY22f.

Source: BIMB Securities Research - 7 May 2021