Supermax Corporation Bhd (SUPERMX) is acquiring the remaining 33% stake in a 67%-owned loss-making Canadian unit for RM18.9m cash.
Kenanga Investment Bank (Kenanga) said today (May 10) they are negative on the deal as it will pile on losses to SUPERMX’s bottom line. Kenanga keep their FY24F numbers but cuts their FY25F net profit forecast by 54% and are keeping their TP of RM0.84 and MARKET PERFORM call.
SUPERMX’s is acquiring the remaining 33% equity interest in 67%- owned Supermax Healthcare Canada Inc (SHCI) for C$5.5m (RM18.9m) cash. It is acquiring the stake from an individual by the name of Sylvain Bergeron. SHCI is involved in marketing, importing and distributing latex gloves for the Supermax group in Canada.
The RM19m capital outlay will only put a minor dent to SUPERMX’s net cash of RM1.5b as at 31 Dec 2023. However, based on SHCI’s net loss of RM53m in FY23 (Jun), the 33% additional equity interest will add RM17m losses to SUPERMX’s bottom line on a full-year basis.
Kenanga is negative on the latest development as the sector is still grappling with subdued ASP, rising costs and low plant utilisation amidst intense competition.
Kenanga said the group expects the current challenging operating environment to persist and only expect a likelihood of a meaningful recovery to take place only sometime in 2025.
Kenanga expects the operating environment to remain challenging in subsequent quarters, plagued by massive oversupply. Based on their estimates, the demand-supply situation will only start to head towards equilibrium in CY26 when there is virtually no more new capacity coming onstream while the global demand for gloves continues to rise by 15% per annum underpinned by rising hygiene awareness.
MARGMA projects 12%−15% growth in the global demand for rubber gloves annually from CY23, following an estimated 25% contraction to 300b pieces in CY23.
Kenanga projects the demand for gloves to rise by 30% in CY24 to 390b pieces (due to a low base effect in CY23) and resume its organic growth of 15% thereafter.
This will result in an excess capacity of 212b pieces in CY24. Persistent overcapacity means low prices and depressed plant utilisation will continue to plague the industry in CY24.
