Analysts negative on Supermax’s glove export ban to the US on labour claims
SUPERMAX Corporation Bhd’s representatives in the US are currently in touch in the US Customs and Border Protection (CBP) to obtain more clarity and information on the Withhold Release Order (WRO) issued and the required measures going forward.
This follows the US CBP’s issuance of a withholding release order (WRO) against Supermax Corp and its subsidiaries allegedly based on information that reasonably indicates their use of forced labour in manufacturing operations.
On Wednesday, the CBP identified 10 of the ILO’s indicators of forced labour during its investigation.
Following the investigation, disposable gloves produced by Supermax Corp’s wholly-owned subsidiaries, Maxter Glove Manufacturing Sdn Bhd, Maxwell Glove Manufacturing Bhd and Supermax Glove Manufacturing will be detained from entering all the United States ports of entry effective immediately.
Consequently, Supermax in a filing with Bursa Malaysia on Thuesday that it had embarked on its undertaking to meet the International Labour Organisation (ILO) standards on migrant workers since 2019.
“The process has well started and Supermax is surprised that due consideration has not been given to the fact that corrective steps have started and improvements made to labour welfare. We will speed up the process to come to meeting the ILO standards,” it said.
The rubber glove manufacturer had on Oct 11, 2021 commissioned an independent international consulting firm to conduct an audit into the status of foreign workers in the Supermax Group’s manufacturing facilities focusing on the 11 ILO Forced Labour Indicators.
The audit is currently ongoing, it said.
MIDF Amanah Investment Bank Bhd (MIDF Research) deduced between 25 to 30 per cent of Top Glove’s earnings estimate for FY22 to have originated from the US without the detention order.
“Based on these assumptions, we trimmed the earnings estimates for FY22E by 26.9 per cent and FY23F by 11.1 per cent,” it said in its review following the latest move.
“Just like its top peer, with the immediate ban in effect we can expect Supermax Corp to start distributing the in-stock rubber gloves meant for US exports to other continents.
“With the already high number of competition in other continents, utilization rate of Supermax Corp’s production might decrease in preparation of customers being careful with purchases in the view of declining average selling prices (ASPs).
“The decrease in utilisation rate has been factored into our earnings estimates since we assume that ASP will remain above pre-pandemic levels given the potential higher social compliance costs.”
Meanwhile, the team with Kenanga Investment Bank Bhd (Kenanga Research) affirmed that this latest development was negative to Supermax and was likely to impact its earnings considering that US commands premium ASPs and accounts for approximately 20 per cent of sales.
“The severity to earnings depends on how fast Supermax can replace loss of sales in the US; and how long it takes for the group to resolve the issue,” it highlighted in its review.
“Note that it took almost a year for Top Glove Corporation Bhd (Top Glove) to be cleared of their ban.”