Analyst negative on Supermax’s acquisition of remaining stake in Canadian unit
KUCHING: Analysts at Kenanga Investment Bank Bhd’s research arm (Kenanga Research) are negative on Supermax Corporation Bhd’s (Supermax) move to acquire the remaining 33 per cent stake in its 67 per cent owned loss-making Canadian latex glove distribution unit.
In a filing with Bursa Malaysia on May 9, Supermax announced that it would be acquiring 33 per cent of equity interest in Supermax Healthcare Canada Inc (SHCI) from an individual, Sylvian Bergeron, for a total consideration of C$5.5 million or RM18.96 million.
SHCI is involved in the marketing, importing and distributing of latex gloves for the Supermax group in Canada.
In a company update, Kenanga Research guided that while the acquisition price of RM18.96 million will only put a minor dent to Supermax’s net cash assets of RM1.5 billion as at end of 2023, SHCI’s current loss-making status is expected to put a drag on Supermax’s earnings.
“Based on SHCI’s net loss of RM53 million in FY23, the 33 per cent additional equity interest will add RM17 million losses to Supermax’s bottom line on a full-year basis,” the research arm guided.
They added that they are especially pessimistic on this given that the rubber gloves sector is still grappling with subdued average selling prices (ASP), rising costs and low plant utilisation amidst intense competition.
To reflect the dragged earnings from SHCI’s acquisition, the research arm guides that they have decided to cut their FY25F net profit forecast for Supermax by 54 per cent to RM8.8 million. They however, maintain their FY24F core net loss forecast of RM5.2 million.
Looking ahead, Kenanga Research shares the current challenging operating environment will persist in subsequent quarters, plagued by massive oversupply.
“Based on our estimates, the demand-supply situation will only start to head towards equilibrium in 2026 when there is virtually no more new capacity coming onstream while the global demand for gloves continues to rise by 15 per cent per annum underpinned by rising hygiene awareness.”
While the Malaysian Rubber Glove Manufacturers Association (MARMA) is projecting a 12 to 15 per cent growth in global demand for rubber gloves annually from2 023 following an estimate 25 per cent to 300 billion pieces in 2023, Kenanga Research is projecting demand for globes to rise by 30 per cent in 2024 to 390 billion pieces and resume an organic growth of 15 per cent 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,” they opined.
All in, Kenanga Research maintains their ‘market perform’ call on Supermax with an unchanged target price of RM0.84 that is based on a 0.5times FY24F BVPS at 70 per cent discount to the sector’s average of 1.7-times charted during previous downturns in 2008 to 2011and 2014 to 2015.