Analysts cut Supermax earnings forecasts, target prices on lower ASP expectations

TheEdge Thu, May 06, 2021 11:25am - 2 years View Original


KUALA LUMPUR (May 6): Analysts have revised down their earnings forecasts and target prices (TPs) for Supermax Corp Bhd as they foresee lower average selling prices (ASPs) for gloves after the group’s net profit for the nine months ended March 31, 2021 (9MFY21) came in below their expectations.

Kenanga Research’s analyst Raymond Choo said in a note that the group’s 9MFY21 profit after tax and minority interests came in below expectations at 71% of his full-year forecasts.

“The negative variance to our estimate is due to lower-than-expected ASP. Hence, we downgrade FY21/FY22 net profit by 6%/6%,” he said.

Following the roll-out of Covid-19 vaccines which is likely to cause glove demand to moderate, the group highlighted that global glove prices had since dropped by 15% to 25%.

While reiterating outperform call on Supermax, Choo downgraded its TP to RM6.80 from RM7.80 based on 11 times 2022 revised earnings per share of 61.9 sen (previously 12 times).

RHB Research Institute’s analyst Alan Lim also said Supermax’s core net profit for 9MFY21 of RM2.85 billion was below expectation as it made up only 66% of his estimates.

He attributed the negative variance to the temporary closure at its production plant after the detection of several COVID-19 cases among its foreign workers.

“We have lowered FY21 to FY23 core earnings by 21% to 41% due to a lower utilisation rate assumption of 85% from 90%,” he said.

According to him, Supermax’s FY21 utilisation rate was affected by the temporary plant closure, and for FY22 to FY23, the lower utilisation rate will be due to normalised demand-supply assumptions.

He has also reduced ASP assumptions for FY21 to US$77 (from US$89), for FY22 to US$49 (from US$57), and for FY23 to US$37 (from US$48) after taking into account the recent ASP decline.

While maintaining buy call on the stock, Lim lowered Supermax’s TP to RM6.60 from RM8.75, due to the reduction in earnings estimates and long-term blended ASP to US$37.00.

“We believe the near-term high ASPs will encourage more competition in future. We have lowered our long-term nitrile gloves ASP to US$40 per 1,000 pieces. Hence, the long-term blended gloves ASP for Supermax has been reduced to US$37,” he added.

MIDF Research’s analyst Ng Bei Shan, who also opined that Supermax’s 9MFY21 results missed expectations, believed the group’s ASPs likely to have peaked in 3QFY21.

“Gauging from Supermax’s latest set of results, we think that ASP for the company has likely peaked in 3QFY21,” she said.

She expects that ASPs may moderate depending on the development of the pandemic and how well and soon the situation can be contained.

“We understand that some buyers are adopting a wait-and-see approach in replenishing their inventories given the high prices currently,” she said.

She revised down Supermax FY21 and FY22 earnings by 4.7% and 6.7% as she adjusted her ASP and input cost assumptions to better reflect current market dynamics.

While reiterating buy call on Supermax, she lowered its TP to RM6.73 from RM13.83.

Meanwhile, Affin Hwang Capital’s analyst Ng Chi Hoong said, Supermax 9MFY21 results missed his expectation, mainly because he has underestimated the duration of the production halt in February, which is estimated to be around 5% to 10% of the production volume for the quarter.

“We are lowering our earnings forecast for FY21 by 7% to factor in the 3QFY21 performance and lowering our TP to RM7.40 (from RM10.90), while maintaining our buy call,” he added.

His forecasts have already factored in a 5% to 10% decline in ASP by end of the year, and a 3% to 5% month-on-month decline in ASP for 2022.

Supermax's shares encountered some selling pressure this morning after it delivered a lackluster result. The counter which was the top loser this morning, fell as much as 71 sen and 12.75%  to RM4.86.

At 10.53 am, the counter pared some losses at RM5.04, still down 53 sen or 9.52%.

Read also:
Supermax's 3Q net profit marginally lower q-o-q at RM1b, pays 13 sen special dividend 
Supermax: Rubber glove spot prices on downtrend, falling 15% to 25%

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