Strong balance sheet can support Supermax’s expansion plans
KUCHING: Supermax Corporation Bhd’s (Supermax) expansion plans can be supported by its strong balance sheet while demand for its gloves are expected to remain strong for the next two years, analysts observed.
In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) noted that the company has earmarked RM1.3 billion for Plant 13, 14, 15, 16 and 17 in Klang. The progress of the five new plants is at various stages with commissioning plans from 2021 to 2022.
It also noted that Supermax is working with government agencies in the US to build factories there for the US market. It plans to allocate US$300 million for the first phase and US$250 million for the second phase.
In the long-run, it said, it targets to build a capacity of circa 15 billion pieces of gloves for the US market, specifically supplying to the US government agencies and hospitals initially. Ultimately, its ambition is to capture circa 10 per cent of US market with US-made gloves from its production capacity there.
MIDF Research further explained that the company is at the stage of identifying suitable sites for the plant in the US. Other than the US, it is also eyeing to build a plant in the UK with a budget of 50 million pounds ( RM271.5 million) and a targeted capacity of 220 million pieces of gloves per year. It has started the commissioning of its Canadian face mask production and delivered a few million pieces to the Canadian government.
“We believe that its expansion plans can be supported by its strong balance sheet as net cash stood at RM2.1 billion as of end-September,” it opined.
Supermax is also eyeing a dual listing in Singapore.
“The company is in the midst of appointing an investment bank ( IB) for its plans to list on the Singapore stock exchange. It aims to raise funds for its future expansion plans, to widen its shareholders base and to expose its name to the global financial market.
“It expects to share more details after the announcement of the appointment of the
IB. It targets to complete the exercise in six months upon the appointment,” MIDF Research said.
All in, MIDF Research reiterated its ‘ buy’ recommendation on Supermax as it believed its prospects are still positive due to the high demand in gloves and potentially higher ASPs in the coming quarters. Its profit margins are also superior while operating cash flow is expected to remain strong.
Meanwhile, Kenanga Investment Bank Bhd’s research team (Kenanga Research) pointed out that ASP is anticipated to continue rising.
“We highlight that industry ASP has risen for September to December delivery suggesting that the robust demand will continue over the next few quarters. We do not expect supply to flood the market at least in the first three quarters of 2021 despite growing concern amongst investors that a number of Malaysian listed companies have announced new ventures into the gloves manufacturing segment.
“We expect demand will stay strong at least over the next two years and shortage in supply will remain tight due to formers shortage and raw material constraint,” Kenanga Research said.
“In an unprecedented move, Supermax is allocating US$550 million capex in two phases of which details are scant at the moment with regards to production capacity.
“The group is looking to set up a manufacturing plant in the United States namely Plant 18 and currently in talks with various government agencies in the US looking for a suitable estimated 50 acre site initially.
“Financing is expected to come from profits generated from distribution centres. Separately, in an announcement to Bursa Malaysia, Supermax has proposed for a dual listing on the Singapore Exchange,” Kenanga Research said.