Supermax’s 4Q results to beat doubled 3Q earnings, says RHB Retail Research

RHB Research has maintained ‘buy’ for Supermax Corp with a higher RM6.08 target price from RM3.90, with 33 percent upside and 1 percent yield.

Supermax’s 3QFY20 earnings have more than doubled, exceeding expectations. Both sales and margins are at record highs and RHB Retail Research expects for its 4QFY20 earnings to do even better.

“We increase our earnings estimate and TP,” the research house said.

The outperformance was caused by exceptional sales and EBITDA margins registered in 3QFY20. Note that sales surged 16% QoQ (+24% YoY) to MYR447m due to a climb in gloves demand. EBITDA margins also expanded QoQ and YoY on declines in raw material prices

“While we expect the gloves industry’s ASPs to increase, Supermax’s magnitude should be higher. Note that 50% of its
products are sold under the OBM segment, which allows it to enjoy margins all the way up to the end customer level instead of selling to distributors under the original equipment manufacturer (OEM) segment,” RHB said.

According to the research house, in the long run, Supermax is a beneficiary of the long-term uptrend in global gloves consumption: 8 to 10 percent annually, even without Covid-19.

“Risks to our call, lower-than-expected sales volumes and USD/MYR, and higher-than-expected raw material prices,” the research house said.


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