Supermax Corp Bhd, the first Company of the Year of The Edge Billion Ringgit Club (BRC) in 2010, booked remarkable growth over its last three financial years as Covid-19 shored up demand for personal protective equipment such as rubber gloves.
Its share price surge and dividends paid when glove makers were investors’ darlings during the height of the pandemic helped Supermax beat peers in the healthcare sector to bag BRC awards for highest shareholder returns over three years in 2020 and 2021.
This year, however, Supermax takes home the BRC award for highest growth in profit after tax (PAT) — a joint winner with Kossan Rubber Industries Bhd.
For its financial year ended June 30, 2021 (FY2021), Supermax achieved a record profit after tax (PAT) of RM3.82 billion, the first time it had crossed the RM1 billion mark and a whopping 630% year-on-year growth over RM524.8 million in FY2020.
In fact, that RM3.82 billion was five times the cumulative PAT between FY2018 and FY2020. Supermax’s FY2021 PAT was RM123.11 million in FY2019 and RM106.7 million in FY2018.
This led the company’s PAT to record an astounding 229.5% risk-weighted compound annual growth rate (CAGR) from FY2018 to FY2021, according to the BRC awards methodology.
In tandem with the upward trend in PAT, its earnings per share (EPS) swelled to an all-time high of 147.03 sen in FY2021, from 20.08 sen in FY2020, 4.7 sen in FY2019 and 4.06 sen in FY2018.
Revenue also climbed higher over the three years: From RM1.3 billion in FY2018, it rose to RM1.54 million in FY2019 and RM2.13 billion in FY2020, before reaching an all-time high of RM7.16 billion in FY2021.
Supermax’s shareholders were rewarded with generous dividends during its bumper year in FY2021. It declared dividends of 31.8 sen per share, which comprised a 28 sen special dividend and an interim dividend of 3.8 sen per share.
The company appears to be accelerating its share buybacks, which had resumed on Feb 28 this year after a pause of over a year.
Between Feb 28 and Sept 19, 2022, Supermax bought back 60 million shares totalling RM54.52 million, in a price range of 70.5 sen to RM1.10 apiece.
In comparison, it spent RM53.92 million to buy back just 8.15 million shares in a price range of RM6.24 to RM6.70 each in 2021, while it spent RM168.52 million buying back 42.9 million shares in 2020.
In Aug 22 notes accompanying its fourth quarter results for FY2022, Supermax says the rubber glove industry is currently well into a consolidation phase, having gone through its strongest-ever growth phase historically in 2020 and 2021, triggered by the Covid-19 pandemic.
Like most glove stocks, Supermax’s share price has descended back to earth as investors came to terms with the oversupply situation caused by existing players ramping up capacity and new players flocking into the industry in a bid to capitalise on the surging demand for gloves during the height of the pandemic. That, coupled with normalising demand as the world comes to terms with a pandemic that is transitioning to endemicity, has resulted in average selling prices (ASPs) for gloves treading lower from their record highs.
“[Hence] going forward, we are expecting the market to remain weak, competition to be intense and the profit margins [to] continue to moderate,” Supermax observes.
It should be noted that Supermax and its subsidiaries were slapped with sanctions by the US Customs and Border Protection (CBP) on Oct 21, 2021, accounting for 20% of the group’s sales. The ban had not been lifted at the time of writing.
While the negatives are in the price, RHB Research analyst Oong Chun Sung says in a Sept 28 note that risks for Supermax remain tilted on the downside since the industry is now operating at suboptimal levels, on top of a further round of share price corrections likely related to its larger peers being potentially excluded from the list of 30 component stocks of the FBM KLCI.
Oong also forecasts that the inventory drawdown of glove distributors may take at least a year before easing to pre-pandemic levels, with global demand growth expected to remain sluggish at 4% and 6% for 2023 and 2024 respectively, plus lofty on-hand inventory levels of glove distributors that could still last for another six months.
Time will tell if Supermax can once again bounce back stronger, as it has done in the past.