Supermax prospects over next few quarters garners excitement

KUALA LUMPUR: Supermax Corporatin Bhd’s (Supermax) prospects over the next few quarters has garnered excitement among analysts, following a third quarter of financial year 2020 (3QFY20) post result briefing.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), this was on the back of the group having dual-stream incomes from manufacturing and distribution.

“Specifically, Supermax is expected to gain from higher margins from both its gloves manufacturing and distribution due to abnormal demand and acute supply tightness,” Kenanga Research said.

“We expect higher margins going forward due to higher product mix skewed towards own brand manufacturing (OBM) distribution which accounts for 95 per cent compared to 70 per cent preCovid-19 which we believe had caught us as well as the market by surprise at a time when of tight supply due to aggressive stockpiling of critical medical supplies including gloves.”

The research arm noted that typically, manufacturing original equipment manufacturing (OEM) pre-tax margin ranges between 12 per cent to 15 per cent compared to OBM pre-tax margin of 15 per cent to 20 per cent.

“In terms of demand, Supermax is ge ing enquiries from foreign government agencies, non-government organisations, retail and restaurants chains.

“Amplifying the pent-up demand, buyers are paying between 30 per cent to 50 per cent deposits in advance to secure glove supply and timely delivery.

“The delivery lead time has now risen from 45 to 60 days pre Covid-19 to 10 to 12 months currently.”

It further noted that case in point is Supermax’s overseas distribution centres which are experiencing fast inventory depletion from usual four months to within six weeks.

Kenanga Research recapped that Supermax expects the heightened demand to continue for the next one to 1.5 years.

“All in, we are bullish on higher-than-expected margins since average selling price (ASP) has been moving upwards week-on-week.

“As demand pick up, containers are shipping at prices higher than previous months.”

SHORT-TERM interbank rates ended stable yesterday on Bank Negara Malaysia’s (BNM) operations to absorb surplus liquidity from the financial system. The surplus in the conventional system declined to RM34.60 billion from RM35.99 billion in the morning, while in the Islamic system, it fell to RM18.10 billion from RM27.31 billion.

Earlier yesterday, the central bank conducted two conventional money market tenders and one Islamic range maturity auction tender. At 4 pm, BNM called for a RM34.60 billion conventional money market tender and an RM18.10 billion Murabahah money market tender, both for oneday money.

The average Islamic overnight interest rate stood at 1.97 per cent, while the one-, two- and three-week rates stood at 2.04 per cent, 2.09 per cent and 2.13 per cent, respectively.