Glove maker’s valuation still attractive


PETALING JAYA: Supermax Corp Bhd’s (pic) shares are deemed undervalued at current prices, considering its robust earnings prospects for at least the next one year, says CGS-CIMB Research.

“In our view, Supermax is undervalued at current valuation of seven times 2021 earnings, ” the brokerage said in its report.

It retained its add call on the stock with a lower target price of RM10.80, compared with RM13.20. This came after it revised its valuation to 15 times forward earnings from 18.3 times previously.

“Note that we now peg Supermax to the glove sector’s five-year mean despite its robust earnings prospects, as we take a more conservative approach, ” it explained.

“Supermax’s impressive numbers for financial years ending June 30,2021 to 2023 may potentially be one-offs.

“Still, we think Supermax remains as an attractive proposition, due to the strong global glove demand, higher-than-average margins in the sector and solid dividend yields of 3.3%-6.7% (FY21-FY23), the research house added.

Superax glove productionSuperax glove production

It noted that the company had highlighted its current order backlog is up to at least end of the first quarter of 2022.

“This is driven by robust global glove demand, which Supermax believes could sustain for at least the next 1.5 to two years. Also, it expects its average selling prices (ASPs) to remain on the uptrend for the time being, ” it said.

CGS-CIMB said Supermax has fully commissioned all production lines in its Block B with capacity of 2.2 billion pieces per year, Plant 12 with a capacity of 4.4 billion pieces per year at the end of last year.

“This lifts its total production capacity by 9.2% to 26.2 billion pieces yearly. We gather that construction of Plants 13,14,15,16 and 17 are ongoing, with the new production lines to be gradually commissioned later this year onwards, ” CGS-CIMB said.

“In total, we expect Supermax’s production capacity to rise by 85% to 48.4 billion pieces per year with the addition of these five new plants by 2023 assuming that there are no delays, ” it added.

Interestingly, Supermax had not detected any positive Covid-19 cases among its workers.

“As of last week, Supermax has detected zero positive Covid-19 cases so far, post conducting Covid-19 testing on all of its 3,000 workers recently.

“We believe the company plans to test all of its workers on a monthly basis, with those working in the packaging area receiving extra scrutiny, ” CGS-CIMB said.

“It will also continue to implement stringent Covid-19 prevention measures such as regular sanitisation of all its facilities, including factories and hostels, ” the research house added.

Meanwhile, Supermax is also finalising plans for its US-based glove plant and the company believes it is strategic to have a glove plant situated in the US due to the proximity to its large-volume customers and raw material supply.

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