Supermax Receives "Buy" Rating from RHB

Supermax Corp (SUCB MK) is recognized as one of the world's top four glove manufacturers, specializing in the production of both latex and nitrile gloves. The company operates within the consumer cyclical sector, specifically in the rubber products industry. The company has established a strong presence in the rubber products industry and is known for its commitment to recycling waste materials from raw materials and by-products. Supermax Corp also maintains high standards for its suppliers through periodic audits to ensure adherence to purchasing and quality requirements.

– For the financial year ending June 2023 to 2027, Supermax Corp's total turnover is projected to increase from RM821 million in 2023 to RM1,367 million in 2027.

– The recurring net profit is expected to turn positive from a loss position in 2023 to a profit in 2027.

– The gross margin is expected to increase from 18.4% in 2023 to 30.9% in 2027, and the operating EBITDA margin is projected to grow from -11.0% in 2023 to 14.6% in 2027.

– Total Turnover Recovery: After an initial decrease from RM821 million in FY23 to RM646 million in FY24, there is a significant recovery, with turnover increasing to RM1,090 million in FY25F, further to RM1,200 million in FY26F, and culminating in RM1,367 million in FY27F.

– EBITDA and Operating Profit Improvement: EBITDA moves from a loss in FY23 to a profit in FY27F, and operating profit turns from a loss in FY23 to a profit in FY27F.

– Revenue Growth and Margin Expansion: Revenue growth starts with a significant decrease in FY23 but improves to 13.9% in FY27F. Gross margin increases from 18.4% in FY23 to 30.9% in FY27F, and the operating EBITDA margin improves from -11.0% in FY23 to 14.6% in FY27F.

The report maintains a BUY recommendation on Supermax Corp, representing an upside. This recommendation is based on the potential benefits from the US increasing import tariffs on Chinese glove makers, which could lead to trade diversions in favor of Supermax. Despite the recent weakening of the USD, which may hinder investor sentiment, the company's ability to raise average selling prices (ASP) to offset currency effects is seen as crucial.

– Opportunities: The industry dynamics have turned favorable for glove manufacturers with customers more receptive to ASP increases. Malaysian glove makers are discussing raising prices to account for the weakening USD, which could further improve ASPs by 4QCY24. Additionally, the export volume of gloves from Malaysia has surged, indicating a healthy recovery in global glove demand.

– Risks: Key risks include a decrease in glove ASPs, slower-than-expected capacity expansion, lower-than-expected utilization rates, and higher-than-expected raw material prices. The weaker USD may also result in near-term margin compression.

Supermax Corp is well-positioned to benefit from the current industry trends, including increased demand for gloves and potential trade diversions due to US tariffs on Chinese competitors. The company's financial performance is expected to improve over the forecast period, with a turnaround from a net loss to a profit and an increase in turnover. Despite near-term challenges from currency fluctuations, Supermax Corp's long-term outlook is positive, supported by its industry dynamics and strategic positioning. The "Buy" rating reflects the company's potential for growth and recovery, making it an attractive investment opportunity.