January 31, 2023

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Supermax Results Update (Q4 FY21)

Pix Source : Supermax

Supermax results came in better than my expectations as I was anticipating quite a steep drop in revenue and profits due to MCO / EMCO closure impact. It is rather positive to see they managed a revenue of RM1.875B and net profit coming in at RM 958M (after minority interests). This is also because I was expecting as OBM, they would be hit hardest by the steep fall in spot price instead of contract price.

If we look at how they sustain, the main reason was due to added capacity for supply that came onboard. In short, their revenue increased because of more volume sold compensating for lower ASP. They added additional 2.2B pieces by end of this year and will continue to expand onwards to 2023. Whether they will follow through in execution, we shall see.

Supermax cash position swelled to RM3.78B. After deducting their borrowings, Supermax is net cash RM3.5B. To put it into context, their net cash position is 42% of current market cap. That is how big the war chest the glove players are and undervalued their share price.


"I know some readers are rather excited with their 15 sens special dividend and rightly so as if you take their full year dividend of 31.8 sens, the yield at current price means it is 10.32%. But most investors cost is definitely higher than current share price." 

So how do you measure if the dividend is generous? Well very simply to look at the dividend payout ratio which measure dividend paid against profits. The total dividend paid to date is RM99.47M (3.8sens) + RM340.3M (13 sens) + this QR RM 408.15M (15 sens) = total RM 847.92M. Absolute sum it is staggering but when you measure against their full year net profit of RM 3.81B, the dividend payout ratio is only 22%. To put it into perspective for you all, Top Glove dividend payout ratio is 70%, Hartalega is 60% and Riverstone is currently 54%. What does this tell you of how Supermax reward shareholders?

Lastly, their expansion in US, Canada and setting up facilities overseas been talked about a lot with no concrete follow up to date. Whatever proposed, better to wait to see the end results. As for their view on the ASP gradual decline and demand remains strong due to structural step up, I am glad Supermax did point it out. 

They also mentioned the steep drop of spot rate versus contract price which is reflective of the actual situation that I know and the biggest impact would be towards Supermax followed by Top Glove who had more allocations to spot rates instead of locking in contracts unlike other OEM centric glove players such as Hartalega, Riverstone and Kossan.

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This  information should not and cannot be construed as or relied on and (for  all intents and purposes) does not constitute financial, investment or  any other form of advice. Any investment involves the taking of  substantial risks, including (but not limited to) complete loss of  capital. Every investor has different strategies, risk tolerances and  time frames. You are advised to perform your own independent checks,  research or study; and you should contact a licensed professional before  making any investment decisions.

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