November 18, 2021

Analysts Expect a Gloomy Supermax Future

 What is the fate of Pumpkin oi!

Analysts expect Supermax to face a challenging future on deck due to restrictions on imports of gloves from the United States (US), low average selling price (ASP) and the impact of the Prosperous Tax.

On Wednesday, Supermax announced that its net profit for the first quarter ended September 30, 2021 (1QFY22) fell one -third to RM638.52 million from RM958.71 million recorded in the previous quarter and its quarterly revenue also plunged 22.4% to RM1.45 billion from RM1.88 billion.

Following that, some economic analysts have given insights on the future direction of Supermax.

Kenanga Research analyst Choo Ping Khoon said although Supermax posted a profit that exceeded its expectations, prompting him to raise its net profit forecast for the financial year ending June 30, 2022 (FY22) by 12%, it was still not convincing.

He warned that revenue in the next quarter may be affected by lost revenue from sanctions imposed by the United States using the Order Clearance Order (WRO) by the U.S. Department of Customs and Border Protection (GST), which accounts for 20% of its sales revenue.

In addition, Affin Hwang Investment Bank analyst Ng Chi Hoong also expects a weak performance for Supermax for the next quarter as the company will continue to operate at declining capacity due to continued labor shortages and declining ASPs.

He added that the Supermax revenue projection for FY22 is expected to increase by 9.8% but the FY23 and FY24 projections are expected to decrease by 47.4% and 42.5% due to the low ASP factor.

Meanwhile, UOB KayHian analyst Philip Wong opined that 1QFY22 Supermax's earnings were below expectations as its earnings were flanked by two problems, namely the temporary closure of its operations during the Tightened Movement Control Order (PKPD) and the sudden reversal of the ASP. While the performance was unexpected, it is expected to plummet due to the downward cycle in the industry.

Next, KAF Research analyst Nabil Zainoodin projected weak earnings for Supermax due to sanctions by the U.S. last month and the termination of Canadian federal government contracts, both of which occurred because of allegations of forced labor.

He added that apart from the expected lower sales volume to the two major markets, the company's revenue will also be affected by the imposition of the Prosperous Tax announced in the 2022 Budget.

As of 2pm, Supermax shares were down 4 sen or 2.20% at RM1.78.