Supermax’s Q4 profit seen better than Q3

Analysts expect higher earnings on the back of surge in orders

“With 40%-50% of its gloves sold under original brand manufacturing (OBM) via its own distribution centres, we think Supermax can record higher ASP increases than its peers, leading to better margins.” CGS-CIMB Research

KUALA LUMPUR: Brokerage firms expect Supermax Corp Bhd’s (Supermax) fourth quarter ending June 30 (4Q20) earnings to be better than its third quarter results on the back of an increase in average selling prices (ASPS), a surge in glove orders and better economies of scale.

As such, CGS-CIMB Research is keeping its “add” call on Supermax with a higher target price of RM6.50.

This is in tandem with a hike in earnings per share.

The better assessment reflects the current favourable operating environment due to Covid-19 and the group’s distribution business, which garners better margins in these times.

“With 40-50% of its gloves sold under original brand manufacturing (OBM) via its own distribution centres, we think Supermax can record higher ASP increases than its peers, leading to better margins,” said CGS-CIMB Research.

Given the stronger-than-expected 3Q20 results, it raised the group’s financial year ending June 30 (FY20) to FY22 forecast earnings per share by 13.3% to 15.8% to account for better-than-expected margin expansion from the distribution business, increase in average selling prices and higher economies of scale.

On ASPS, CGS-CIMB Research expects a 10% to 15% rise monthly from June 2020 onwards, post raising it by 25% to 30% month-on-month in April 2020.

For the 3Q20, Supermax’s core net profit surged 105% year-on-year (y-o-y) and 136% quarter-on-quarter (q-o-q) to Rm71mil.

Meanwhile, RHB Research said its earnings for the 3Q20 results more than doubled and beat its expectations as both the group’s sales and earnings before interest, tax, depreciation and amortisation (EBITDA) were at record highs.

Early yesterday, shares of Supermax surged to its highest in at least ten years after it reported that its net profit doubled in the 3Q20 amid overwhelming glove demand.

The glovemaker jumped 14.6%, or 67 sen, to RM5.26 after market opened, making it the top gainer on Bursa Malaysia, with 11.7 million shares traded.

With the stronger set of 3Q20 results, the research house also increased Supermax earnings forecast after raising its average ASP estimates.

RHB Research has increased its earnings by 18%-28% for FY20 forecast and FY22 forecast.

“Our new target price implies 28.6 times for FY21 forward price-to-earnings ratio.

“This reflects a 20% discount against the sector’s average forward price-to-earnings ratio of 35.8 times, which we believe is justified due to Supermax Corp’s lower market capitalisation or liquidity,” it said.