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KUALA LUMPUR (Oct 28): Instead of buying more shares in Supermax Corp Bhd after it posted a stellar set of quarterly earnings, investors are taking profits off the rubber glove counter.
At 10.45 a.m. M., Supermax was down 14 sen or 1.43% at RM 9.64. Some 32.58 million shares changed hands this morning, making it the eighth most traded share across the board.
Most analysts reiterated their “buy” recommendation for the stock in light of recent quarterly earnings. The glove maker’s net profit soared almost 32 times to RM789.52 million for the first financial quarter ending September 30, 2020 (1QFY21) due to continued and growing demand for rubber gloves amid the pandemic of Covid-19.
Supermax’s earnings figures beat Affin Hwang Capital analyst Ng Chi Hoong’s forecast, noting in his earnings review that the company’s net profit for the first quarter alone made up 42% of his forecast for the full year. .
Against a backdrop of resurgence of Covid-19 cases in many parts of the world, Ng raised its earnings per share (EPS) estimates for the financial year ending June 30, 2021 (FY21) -FY23 by 50.4 % -61.7%, with higher assumptions of the average selling prices (ASP) of rubber gloves.
He expects Supermax’s EPS to skyrocket to RM1.09 for fiscal year 21, but it more than halved to 45.9 sen for fiscal year 22. The company’s EPS stood at 19.3 sen for fiscal year 22. fiscal year 2020.
Despite the improvement in earnings, the analyst is cautiously optimistic. Ng, in fact, cut its price target (TP) marginally RM16.40 from RM16.50 previously, the reason being that it foresees weaker sentiments in the sector due to the flow of news about the availability of Covid-19 vaccines.
Strong earnings growth recently was driven by an increase in ASPs in the quarter, which in turn extended the group’s earnings before tax to 77.6% from 8.8% a year earlier.
Ng believes that combined ASPs will continue to grow 4% to 5% per month (per month) in Fiscal Year 21, before remaining stagnant in Fiscal Year 22.
He noted that since the group’s Plant 12B was almost finished, it would have added another 4% to 5% in additional capacity by the end of 1TFY21.
CGS-CIMB analyst Walter Aw reiterated his “add” call for Supermax with an unchanged TP of RM13.20.
“We consider the group’s first quarter net profit of RM789.5 million to be in line with our expectations (24.4% of our full-year forecast) but above consensus,” he said.
According to Aw, with strong global demand for gloves, Supermax said that the visibility of its current order book had been extended to the end of 2021. Additionally, the glove maker’s customers have been willing to pay higher prices and 30-year deposits. % to 50% to ensure supply.
“We view this positively as we expect these factors to drive stronger QoQ earnings for Supermax in the coming quarters,” Aw said.
Aw advocated for investors to take a position in Supermax because of its stronger earnings outlook due to the current strong global demand for gloves and its proven original brand manufacturer (OBM) business model, which earns better margins than its peers.
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