Supermx: Soaring like an Eagle

Result Update

For QE30/6/2020, Supermx's net profit rose more than 3-fold q-o-q or more than 24 times y-o-y to RM400 million while revenue rose 108% q-o-q or 147% y-o-y to RM929 million. In the notes to the Financial Statement, the company explained its spectacular y-o-y performance in these words:

Supermax achieved its best ever quarterly financial performance in its history. Revenue soared to RM929.1 million, which was 147.1% or RM553.2 million higher compared to the corresponding Quarter a year ago. Profitability rose sharply with EBITDA, PBT and PAT margins at its highest ever and industry leading levels of 60.4%, 55.9% and 43.9% respectively. The Group‟s performance was mainly due to: 

a) An exponential rise in demand for Medical Gloves & other PPEs on the back of the Covid19 pandemic. 
b) Increase in additional production capacity from the newly commissioned lines at plant # 12 block A lines. 
c) Increase in average selling prices (ASPs) each month started in March, 2020 for both its Manufacturing and Distribution divisions. 
d) Increase in percentage of the Group‟s capacity & Global Sales to end-users; including sales to governments and government agencies of various countries where Supermax Group operates and in over 165 countries.

e) Proven business model through Own Brand Manufacturing (OBM) with 2-streams of income via Manufacturing & Distribution.

Amen!

Table : Supermx's last 8 quarters' P&L

Graph: Supermx's last 55 quarters' P&L

Financial Position

Supermx's financial position as at 30/6/2020 is very healthy with current ratio at 1.3 times while gearing ratio was at 1.0 time. The company commented generously about its improved financial position as follows:

Supermax‟s already sound financial position has strengthened dramatically, most notably to a net cash position with cash & bank balances amounting to RM1.18 billion as of 30 June 2020 compared to RM173.8 million a year before. The increase is mainly due to customers paying 30%, 40% and 50% deposits in advance to secure supply.

Thanks to the deposits collected to the tune of RM892 million, Supermx was sitting on a huge cashpile of more than a billion ringgit! But bearing in mind, this is customers' money paid upfront.

Outstanding Corporate Exercise

Supermx has declared a 1-for-1 bonus which is pending shareholders' approval at its upcoming EGM on 18 August 2020 (here). Meanwhile the company has proposed a dividend-in-specie of 1 Treasury share for every 45 shares owned after the implementation of the said bonus issue (here).

Valuation

Supermx (closed at RM21.20 yesterday) is now trading at a PER of 53x (based on last 4 quarters' adjusted EPS of 40.20 sen). If we annualized the latest quarterly EPS of 30.58 sen to arrive at a full-year EPS of 122.32 sen, then its PER will be lowered to 17 times. However, I believe to compute PER based on the annualized EPS of 122.32 sen may be too generous if we looked ahead to the normalization of profit due to increased supply of gloves (as a result of increased capacity) as well as lower demand if Covid-19 pandemic were to subside. This will be a tough judgement call for analysts and investors.

Technical Outlook

Supermx share price had rallied sharply from RM2.00 in April to a high of RM23.00 just 3 days ago. Technical speaking, the share price may still go higher in the near term.

Chart: Supermx's daily chart as at Aug 10, 2020 (Source: Malaysiastock.biz)

Conclusion

Based on excellent financial performance & satisfactory financial position, fairly attractive valuation, generous bonus issue ahead and still positive technical outlook, I think Supermx deserved to be rated as a HOLD.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.