KUALA LUMPUR (Feb 1): CGS-CIMB Research has retained its "add" call on Supermax Corp Bhd at RM6.80 with a higher target price of RM11.80 (from RM10.80) to reflect an earnings per share (EPS) upgrade, pegged at 15 times calendar year 2022 forecast (CY22F) price-earnings (P/E), in line with the glove sector’s five-year mean P/E.

In a note last Friday, analyst Walter Aw continued to view Supermax as an attractive play, backed by strong global glove demand owing to Covid-19, higher-than-average margins in the sector (due to its original brand manufacturing model) and solid dividend yields of 4%-9% forecast for the financial year ending June 30, 2021 (FY21F)-FY23F.

To recap, the glove maker’s net profit for the second quarter ended Dec 31, 2020 (2QFY21) climbed 34% quarter-on-quarter (q-o-q) to RM1.06 billion from RM789.52 million in preceding 1QFY21, while quarterly revenue surged to RM2 billion compared with RM1.35 billion in the preceding quarter.

On a yearly basis, net profit jumped by a whopping 3,142% from RM30.17 million a year ago, while revenue also surged from RM385.5 million last year.

Aw said CGS-CIMB deemed the results to be above expectations at 57.2% of the house's and 55.6% of the Bloomberg consensus full-year forecasts.

“This is premised on our view of stronger 2HFY21 results (for the second half ending June 30, 2021), driven by further rise in average selling prices (ASPs) and higher sales volume. It also declared a first interim dividend of 3.8 sen/share within expectations,” he said.

With the 1HFY21 results beating expectations, Aw raised the group’s EPS for FY21F-FY23F by 0.5%-37.8%, mainly to input higher ASPs (US$81 [RM327.44]/US$57/US$36 per one thousand pieces for FY21F/22F/23F).

He noted that Supermax is expected to record stronger results in 2HFY21, driven by an increase in production capacity and higher sales volume, adding that the group continues to witness strong global demand for gloves.

Last Friday, Supermax closed 3.66% or 24 sen higher at RM6.80. This brought its market capitalisation to RM17.8 billion.