KUALA LUMPUR, May 8 — CGS-CIMB Securities has raised the FY20-22F earnings per share (EPS) estimates for Supermax Corporation Bhd (SUCB) by 24.5 to 32.5 per cent on the back of higher glove average selling prices (ASP), better sales volume and higher margins from distribution business.
The research house said since February 2020, it has seen a surge in demand for rubber gloves globally due to Covid-19 and this resulted in SUCB recording higher glove orders with a current order backlog of six to eight months.
“On the back of more conducive supply-demand dynamic in the glove sector, glove makers, including SUCB, are now enjoying better pricing power. This has resulted in higher ASPs and, in turn, better margins,” it said in a note.
The research house said SUCB’s key competitive advantage lies in its manufacturing-cum-distribution business model.
“While other glove makers are mainly OEM suppliers, 40-50 per cent of SUCB’s gloves are sold under its original branding (OBM), via its own distribution centres in seven countries, including the United Kingdom, the United States and Europe.
“Hence, it has been able to chalk up better margins via higher ASPs (OBM gloves are sold at distribution prices instead of factory prices) by supplying to end-customers directly,” it said, adding that this would allow SUCB to raise ASPs by 25 to 30 per cent since March 2020.
Meanwhile, CGS-CIMB Securities said SUCB is embarking on an aggressive capacity expansion plan which will see its current glove production capacity rising by 45.8 per cent to 38.2 billion pieces by end-2022.
“This is mainly through the addition of four new plants with total new capacity of 14.2 billion pieces per annum.
“Hence, this should lead to margin expansion for SUCB (1HFY20 EBITDA margin: 14.3 per cent) on the back of higher production from its more efficient lines,” it said.
In addition, it said SUCB is confident that its loss-making contact lens business will break even in FY21.
“This is on the back of better cost-control efforts, as well as higher economies of scale via more sales recorded due to aggressive marketing efforts in the past two years.
“We estimate this segment posted a loss of RM12 million in FY19, down from -RM20 million in FY18,” it added. — Bernama
