KUALA LUMPUR (Nov 18): Analysts see a challenging year ahead for Supermax Corp Bhd amid US glove import ban, lower average selling price (ASP), and the impact of prosperity tax.
Supermax announced on Wednesday that its net profit for the first quarter ended Sept 30, 2021 (1QFY22) plummeted by one third to RM638.52 million compared with RM958.71 million recorded in the preceding quarter, due to continued drop in ASP.
Its quarterly revenue also contracted 22.4% to RM1.45 billion quarter-on-quarter from RM1.88 billion.
Kenanga Research analyst Choo Ping Khoon in a note on Thursday said although Supermax's profit for 1QFY22 was slightly above his expectation and prompted him to raise its net profit forecast for the financial year ending June 30, 2022 (FY22) by 12%, he still sees headwinds ahead for the group.
He cautioned that the group’s earnings in subsequent quarters are expected to be impacted by potential revenue loss from US Customs and Border Protection (CBP)’s Withhold Release Order (WRO) as the United States accounted for 20% of its sales, faster-than-expected ASP normalising, impact from one-off prosperity tax in FY22 from the recently announced Budget 2022.
He maintained "market perform" on the stock but lowered Supermax's target price (TP) to RM1.95 (from RM2.15), based on 10 times its FY23 earnings per share of 19.5 sen.
Affin Hwang Investment Bank analyst Ng Chi Hoong also said he is expecting weaker performance for Supermax in the coming quarters, as the company is likely to continue to operate at a reduced capacity due to the ongoing labour shortage and ASPs have continued to decline quarter on quarter.
“We are lowering our TP to RM1.40 (from RM1.70) and keeping our 'sell' call unchanged, as we believe that the ASPs for Supermax would remain under pressure as it would take at least one year to resolve the CBP ban,” he said.
He revised up Supermax earnings forecasts for FY22 by 9.8% but revised down its FY23 and FY24 earnings forecasts by 47.4% and 42.5% respectively to factor in the lower ASP.
Meanwhile, UOB KayHian analyst Philip Wong said Supermax’s 1QFY22 results came in below expectations as revenue was weighed by a double whammy — the temporary closure of its operations during the Enhanced Movement Control Order (EMCO) and sharp ASP reversion.
He opined that the US CBP’s WRO and gradual moderation across the industry are expected to weigh on Supermax’s sequential earnings performance and sentiment.
“On the back of our dire outlook for the sector, we drastically scale back our volume and ASP assumptions for Supermax. We cut FY22 to FY24 earnings by 20% to 38%,” he said.
While maintaining a "hold" call on Supermax, he revised down its TP to RM1.70 from RM2.75.
“While we continue to like Supermax for its aggressive expansion ambitions, these ambitions unfortunately coincide with a downcycle in the industry at this juncture. For now, its prospects appear fairly priced,” he said.
KAF Research analyst Nabil Zainoodin, who maintained a "sell" call and target price of RM1 on Supermax, also expects weaker earnings ahead for the company.
“We expect sharp earnings contraction following the WRO issued by the US CBP last month and the Canadian federal government’s contract pause, both caused by the alleged use of forced labour.
“In addition to the anticipated lower sales volume to both key markets, earnings will be further impacted by the imposition of Prosperity Tax announced under Budget 2022,” he said.
He also expects significant operating margin reversal in the forthcoming quarters, as ASP has been contracting faster than expected. He posits net profit margin will normalize and return to pre-pandemic levels by early next year.
However, he revised Supermax earnings forecasts for FY22 upward by 14% as he assumed higher overall utilisation for FY22 as 1QFY22 utilisation rate was above his expectation.
At 10.52am, Supermax slipped one sen or 0.55% to RM1.81, valuing the group at RM4.76 billion.
Year-to-date, the counter has fallen 67.15%.