Supermax sees hit to Q2 22 earnings as it audits forced labour indicators

Supermax became the second Malaysian glove maker banned by the United States Customs and Border Protection earlier this week. — Reuters pic
Supermax became the second Malaysian glove maker banned by the United States Customs and Border Protection earlier this week. — Reuters pic

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KUALA LUMPUR, Oct 22 — Supermax Corp Bhd expects a clearer financial impact in the second quarter of 2022 as the company works towards auditing the 11 Indicators of Forced Labour by independent auditors.

Currently, 20 per cent of its sales goes into the US market and analysts are anticipating that it is going to affect the company quite significantly.

aker banSupermax became the second Malaysian glove mned by the United States Customs and Border Protection (CBP) based on information indicating its use of forced labour in manufacturing operations and its products were detained at all US entry ports since Oct 21.

“We are currently in the midst of auditing the 11 Indicators of Forced Labour by an independent auditor. One of the subsidiaries have been audited last week and another subsidiary is in the midst of being audited by the independent auditor this week.

“As soon as the independent auditors have completed the audit, we shall move to the next step,” a source from Supermax told Bernama.

The source said since 2019, when the issues of forced labour were made known to the industry, Supermax has taken a swift action by hiring an independent auditor to carry out an assessment audit according to the 11 Indicators of Forced Labour.

“The most sensitive one was the Recruitment Fees and we have since remediated and paid back the recruitment fees to each foreign labour, including those who have returned to their home country whom we were able to trace.”

In a filing with the local bourse yesterday, the group said that it will take steps to divert goods bound for the US to other markets where possible and has informed all its stakeholders that it is taking immediate and necessary steps to address the issue expeditiously.

On Oct 20,  the US CBP issued a Withhold Release Order (WRO) against Supermax Corp and its subsidiaries allegedly based on information that reasonably indicates its use of forced labour in manufacturing operations.

The CBP identified 10 of the ILO’s indicators of forced labour during its investigation.

Following the investigation, disposable gloves produced by Supermax Corp’s wholly-owned subsidiaries, Maxter Glove Manufacturing Sdn Bhd, Maxwell Glove Manufacturing Bhd and Supermax Glove Manufacturing will be barred from entering all the United States ports of entry.

CGS-CIMB Securities Sdn Bhd, in a note, said it expects the audit report to be submitted in three to four months’ time, while CBP’s review may take another six to nine months.

“We cut our financial year 2022-2024 forecast earnings per share (EPS) by 15.3-18.5 per cent, mainly to account for the lower average selling prices (higher sales to less profitable markets), lower sales volume, and lower economies of scale.

“Note that we have assumed that the CBP ban will only be lifted by end of the first quarter financial year 2023 forecast,” it said.

To recap, the company reiterates its “hold” call on the company with a lower target price of RM2.16 in tandem with its EPS cuts.

The rubber glove producer achieved a strong quarterly financial performance, recording a net profit of RM958.71 million on the back of RM1.88 billion revenue in its fourth quarter for the financial year ended June 30, 2021.

In comparison, its net profit and revenue for Q4 2020 were RM398.83 million and 929.12 million, respectively. The board of directors has declared a special single-tier dividend of 15 sen per ordinary share for the financial year.

At opening on Friday, shares of Supermax fell 8.89 per cent to RM2.05 with 78.34 million shares transacted. — Bernama


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