The glove maker said yesterday that global glove prices have dropped 15% to 25% following the roll out of the Covid-19 vaccines, but does not expect a sharp drop due to the structural change in glove consumption from new customer segments.
Supermax's recent earnings result reflected the falling ASP as its 9MFY12 Patami of RM2.85bil came below expectations at 71% and 70% of Kenanga's and consensus full-year forecasts.
"Downgrade FY21E/FY22E net profit by 6%/6% after imputing slightly lower ASP from USD70/1,000 and USD50/1,000 pieces to USD68/1,000 pieces and USD48/1000 pieces, respectively," said Kenanga in a note.
The research house also downgraded its target price to RM6.80 from RM7.80 previously based on its 11x 2022 revised forecast earnings per share of 61.9 sen.
The PER was reduced to 11x from 12x previously to account for a 20% oeprating risk discount.
"In our view, from the perspective of a long-term investor, we still see significant value in Malaysian glove players which command 65-68% of global market share and have consistently evolve and innovate in terms of products and plant modernization via automations," said Kenanga.
It added that it is concerned about the execution risk of its venture into the US to manufacture medical gloves and other personal protective equipment with an intial capital outlay of RM100mil.