“We are mildly positive as the United States accounts for 20% of the group’s sales volume," said Kenanga Research.
PETALING JAYA: The resumption of sales to the US market is a positive development for Supermax Corp Bhd
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However, the impact will likely be minimal due to the still challenging operating environment for the glove maker.
According to Kenanga Research, given the glut in the market, Supermax is only expected to see meaningful recovery in its earnings late next year despite receiving clearance to export its disposable gloves to the United States effective Sept 18, 2023.
“We are mildly positive as the United States accounts for 20% of the group’s sales volume.
“However, it will not meaningfully improve the prospects of the company amid a sector downturn due to massive over-capacity,” the research house explained.
“We expect the operating environment to remain challenging in subsequent quarters, plagued by massive oversupply. The group predicts a recovery sometime in late-2024,” it added.
The US Customs and Border Protection announced in a statement early this week that it had modified its “withhold release” order issued on Oct 21, 2021, and would allow imports of disposable gloves manufactured by Supermax and its wholly-owned subsidiaries with immediate effect.
Kenanga Research maintained its “market perform” rating on Supermax, with a higher target price of 85 sen, from 80 sen previously.
The revised target price was largely to reflect the removal of a 5% environmental, social and governance (ESG) discount as it now rates Supermax’s ESG at three stars versus two stars previously following the successful remediation of forced labour indicators within the company’s supply chain.
Valuation-wise, the revised target price was still based on 0.5 times forward book value per share, at a steep discount to the sector’s average of 1.7 times charted during previous downturns in 2008-2011 and 2014-2015, as the brokerage believed the current downturn could be one of the deepest ever.
“Based on our estimates, the demand-supply situation will only start to head towards equilibrium in 2025 when there is virtually no more new capacity coming onstream while the global demand for gloves continues to rise by 15% a year underpinned by rising hygiene awareness,” Kenanga Research said.
The Malaysian Rubber Glove Manufacturers Association (Margma) projected 12%-15% growth in global demand for rubber gloves annually from 2023, following an estimated 19% contraction to 399 billion pieces in 2022. Margma said the the supply-demand equilibrium may return in six to nine months.
Conversely, Kenanga Research expected the overcapacity situation to persist over the next 12 months at least.
“We project the demand for gloves to rise by 15% in 2023, which is consistent with Margma’s forecast. On the supply side, we have already factored in a reduction of 24 billion pieces of gloves in the system by end of 2023,” it said.
“This will result in an excess capacity of 112 billion pieces which is similar to 2022.
“Despite the improvement, overcapacity still persists which means low prices and depressed plant utilisation will continue to plague the industry for the remainder of 2023,” it added.
