RHB Research has maintained “buy” on Supermax Corp with a higher target price (TP) RM 3.90, for a 14 percent upside and 2 percent yield.
The research house also expects Supermax’s ASP to increase by 15 percent, which is higher than peers’ three to five percent as 50 percent of its products are sold under its own brand.
“This allows it to capture higher margins along the value chain. In the near term, we expect strong 3QFY20 results,” it said.
Supermax is also expected to benefit from the global demand surge trend for gloves, which started since February due to Covid-19. Demand for orders had also recorded an increase from the Asia/China region during that month.
Spike was also noticed from major markets, including the US and Europe from March onwards.
While Supermax has increased its capacity by 2.2 billion pieces per annum to 23.9 billion ppa after the completion of Plant 12 Block A in January, the Movement Control Order (MCO) has affected the commissioning of Plant 12 Block B.
Supermax’s capacity is poised to improve by another 9 percent o 26.1 billion ppa with the completion of Plant 12 Block B.
“We expect Supermax to benefit from its higher exposure of products sold under OBM. While we expect selling prices to increase, its overall ASP has risem as more of its products is sold to the end consumers instead of distributors,” the research house said.
“We estimate its ASP to increase 5-15% from FY20-22. This is higher than peers’ ASP increases of 3-5%, as 50% of Supermax’s products are sold under OBM vs peers, which almost all sell under the original equipment manufacturer segment. As a result, we have increased FY20F-22F earnings by 25-86%.”
The research house is also expecting Supermax to report a strong set of results in 3QFY20 which should be announced in the next two to three weeks.
“This is supported by higher sales volumes, a stronger USD/RM and lower raw material prices. In the long run, Supermax is a beneficiary of the long-term uptrend in gloves consumption globally, 8-10% pa, even without Covid-19,” RHB stated.