Supermax: my revised target price

Koon Yew Yin 28 Oct 2020

I have been raising my target price for Supermax a few times before. The first time on 22 June, I set my target of Rm 5.25 which was easily achieved. Yesterday, the company made the following announcement: – 

Supermax Corp Bhd today posted a record quarterly net profit of RM789.52 million, up almost 32 times from RM24.75 million a year ago, thanks to the continued booming demand for rubber gloves amid the Covid-19 pandemic. 

The glovemaker’s bumper earnings for its first quarter ended Sept 30, 2020 came as revenue surged 265.6% to RM1.35 billion, from RM369.94 million a year ago. The group attributed the stellar earnings growth to higher average selling prices for gloves and continuous robust demand. 

Separately, Supermax also announced that it is planning for a dual listing on the Singapore Exchange to expand and diversify its shareholder base. The proposed listing down south will also enable the glove maker to pursue growth opportunities by providing additional channels for Supermax to raise funds if needed, said Supermax. However, Supermax noted that the proposed listing is still at an initial stage and the structure of the listing has not been finalised. 

In view of its latest announcement I need to revise my target price. 

4^th quarter ending June EPS 15.29 sen 

1^st quarter ending Sept EPS 30.58 sen, an increase of 100% from the previous quarter. 

If I assume it can increase its profit by 25% for each of the remaining 3 quarters for the financial year, its EPS for each of the 3 quarters will be:- 

2^nd quarter EPS will be 37.5 sen  

3^rd quarter EPS will be 46.88 sen

4^th quarter EPS will be 58.60 sen 

Total EPS Rm 1.736 for the year. Based on P/E 15, my target price is Rm 26.00. 

I believe my target price of Rm 26 is achievable because my assumption of its 25% increase in quarterly profit is quite conservative.  

All the medical staff will require to wear gloves.  

Many investors are afraid that the approval of the vaccine will reduce the demand for gloves. I wish to point out that to stop the spread of the coronavirus, at least 70% of the people in the world must be vaccinated. It will take a long time to produce so much of vaccine. Moreover, all the medical staff will require to wear gloves to do the vaccination. In fact, more gloves will be required.