SUPERMX (7106) SUPERMAX CORP BHD - BEYOND GLOVES !!!
CiA.CONSORTIUM of INDEPENDANT ANALYST
SUPERMAX - BEYOND GLOVES
Supermax is approaching its QTR 1 2021 result. All investors are waiting in anticipation.
With the recent spike in case worldwide. Our prediction of Superbull in our previous articles is edging closer than ever.
In fact some gloves stock had broken new high and close to new high.
Renewed interest in Glove stock is rekindled as shown in this chart.
With the Covid cases breaking new high and local second wave outbreak. We might revisit a all time high Bursa Trading volume again from CMCO or even nationwide MCO and Loan Moratorium extension. Glove stock will be the darling again without doubts as more funds move back from other recovery theme stock.
Supermax had the following factors to look forward to:
1. Qtr 1 Good result.
2. Share dividend date
3. Business prospect update which provide further price catalyst.
4. DSST return as BOD (some of his great and new plans can be expedited now)
5. KLCI indexing in Dec.
6. Plans for the 90mil Treasury share after the 45 :1 share dividend paid out. Another Share dividend or a possible Oversea listing like TG?
To give a head up to prepare everyone to become an extraordinary investor.
We will talk more about supermax gloves and beyond gloves!!!
Crest duration for each outbreak:
SARS - 2yrs
H5N1 - 5 yrs
H1N1 + Mers - 5 yrs
EBOLA - 2-3 yrs
2017 to 2019 - Mysterious Outbreak ??? before Covid 19
COVID 19 - 2020 - 2025 ?
The demand cycle for disease outbreak can be clearly depicted in the above chart with a crest formation lasting typical 2-3 yrs.
For H1N1 and H5N1 lasted 5 yrs. For Covid which is far more serious, we expect the duration will not be lower than H1N1. It will be structural changing and a huge long term impact can be seen. Margma project a 60% increase from 270 to 430 bil in the yr 2022. Mercator projected a 500bil demand by 2022 in the latest report. We expect a minimum 5 yrs crest formation at least. lasting to 2025.
We have no worries to demand side of the gloves.
The greater worry comes from the supply side. With so much additonal production coming online. The equilibrium will come one day when asp will normalise. Margma expect asp to normalise in 2022/23 when equilibrium will be reached.
But when we talk about quilibrium reached.are we talking about asp falling back to precovid level ?
OEM USD23 -> DISTRIBUTOR USD60 -> RETAILER USD100
During Covid (2020-2023)
OEM USD80 -> DISTRIBUTOR USD120 -> RETAILER USD200
OEM USD100 -> DISTRIBUTOR USD140-> RETAILER USD220
OEM USD120 -> DISTRIBUTOR USD160-> RETAILER USD240
OEM USD1XX -> DISTRIBUTOR USD1XX-> RETAILER USD2XX
POST COVID (2023 beyond)
OEM USD70-> DISTRIBUTOR USD110 -> RETAILER USD150
OEM USD60-> DISTRIBUTOR USD100 -> RETAILER USD140
Price may gradually come down lower to 60-70 than peak of usd100 -120 but is still significantly higher than precovid of usd23.
Due to the following reason:
1. Consumer used to the heightened price after few years.
2. Inflation and weakening USD
3. Increased cost of material
5. Contract ASP between manufactuer and distributor are set at a higher norm price than precovid.
6. Hard pressing by Major distributor weakens due to COVID as more player goes OBM and direct with customers resulting in higher asp in gloves industry.
Our rough estimate for coming qtr 1 result
We are expecting a PAT 781 m to 917 mil. AVG 850 mil.
From 400m in qtr 4 2020 to 850m in qtr 1 2021. Its a 110% QOQ increase !!!
From 24mil in qtr 1 2020 , its a 3400% increase in 1 year !!!
The price @ qtr1 2020 was about 68sen. It had risen to 10.70 which is only 1500%.
With 3400%, the price of Super shld be 68sen x 34 = RM23.12
At current price it is valuing Supermax at 24mil x15 = 360mil PAT which is even lesser than last Qtr PAT of 400 mil.
At 360 mil, it is even lower than post covid profit projection of minimum 400m. (our projection is at the end of page)
So this is a gross undervaluation.
Beside the stellar performance from Glove business. Supermax do have other ventures with huge potential as follows.
2. BEYOND MASK / MASK PRODUCTION
The following are some detail information about this great product.
|2020-07-09||Location: NEW APPLICATION PROCESSING|
|2020-07-09||Status: New application will be assigned to an examining attorney approximately 3 months after filing date.|
Contact lenses with roadmap to expand to 1 billion lenses after obtaining license from china market.
Executive director Cecile Thai (the founder’s daughter) added that Supermax has an existing annual manufacturing capacity of 70 million lens with a 60% focus on OEM. Its utilisation rate stood at 60% in 2019. The company is looking to grow in the U.S., Japan, and Eastern Europe."
The global and U.S. contact lens market stands at US$12 billion and $5 billion respectively.
US$12 billion (RM50 billion x 3% = rm1.5billion potential revenue for AVEO VISION).
Currently contact lens only account for 2-3% of total revenue (precovid). If the growth of 15x (70mx15=1bil)= 30-40% of current reveunue. Contributing to big profit to bottomline.Contact lens are high premium product with good margins. And highly recurrent profit from regular customer.
Supermax roadmap is to hav 1-2 billion caps by 2028. Meaning a growth of 1500% to 3000% from 2019 .
Current Covid have enable to expand and captured more direct customer than ever before. And also increase AVEO brand awareness through Auerlia and Supermax other brand product. Creating a Family brand awareness for supermax own house product. Saving much marketing effort and cost. We can see distributors are carrying AVEO lenses and Supermax gloves in their distribution since they are both healthcare product.
With the current super profit generated from Gloves. The speed will be greatly boosted. We expect it can be acchieved within 3-4 yrs for 1 bil caps.
With the expansion of production facility for BEYOND MASK and CONTACT LENS. It is even more convincing now to be done concurrently with the major Distribution centre in US, UK, CANADA etc.
One of the expansion problem with contact lens expansion is short of high skilled workforce in malaysia.
extracted from the above news dated 15 August 2016
- Rubber glove producer Supermax Corporation, which aims to increase its contact lens capacity to two billion pieces annually in the next 10 years from 40 million currently, plans to set up contact lens plants in Singapore, the US and the UK.
- Management noted that Malaysia will remain its main manufacturing hub, but note the challenge in getting talent in the country, adding that at least 95 percent of its workforce are engineers with minimum qualification of a university degree.
ONLINE EYEWEAR RETAILERS ARE ON THE RISE
Some analysts have said the online eye-wear industry is set to benefit from work-from-home policies as consumers increase purchases of protective glasses, with the shutting of mall-based retailers due to the COVID-19 pandemic also likely to drive a jump in market share."
Online eyewear industry is on the rise. Supermax AVEO VISION is a growing online eyewear company. A potential underdog which will spring and outperform any market underestimation.
AVEO is no.8th and 1800-contact is on 10th of the list. It doesnt mean AVEO Vision is better but it shows that AVEO vision have its competitve edge as a new online contact lens start up.
The next new normal will be getting your test and contact lens even without leaving your house!!!
What Datok Seri Stanley Thai said about AVEOVISION in 2017 before he is out of BOD which caused a setback in contact lens development as her daughter have to manage the supermax glove business as well.
"Outside Malaysia, Supermax owns a six-acre (2.43ha) parcel in the US that could be developed into a contact lens manufacturing site, provided US President Donald Trump’s tax reform presents the group with a good deal."
With BeyondMASK , it might be coming true again for the new mask and lens expansion lines.
"The next phase of expansion for Supermax’s contact lens business will only happen in about two to three years, says Thai, adding that the group does not have room to build new production lines. However, he is planning to set up a “contact lens headquarters” in one of the company’s smallest and oldest glove factories. Relocating and repurposing the factory will take up to three years, which means capital expenditure for the contact lens business will not be substantial in the near future."
Its about time the relocating and repurposing is due for completion in 2020/21. And the expansion is ready to take off with huge flush of cash on hand since covid.
1. OBM- X + 48 billion Capacity by 2022
With OBM-X and 48 billion capacity. Supermax can sustain 400m per qtr in the event of asp falling to 50 to 60 ASP precovid at 22% margin. It is very releastic as Supermax have removed middleman and agent and expanded OBM to 97-100%(70% precovid) and a double capacity with highly efficient new lines. Hence a 22% margin is true and fair.
Due to the fact that post covid, ASP will remain higher than precovid due to the reasons stated in GLOVE section above.
The above calculation is a very conservative projection. Providing a support for long term invester.
2. BEYONDMASK/ MASK and PPE
Supermx can estimate to gain a 100 m to 200m profit per qtr on worldwide roll out.
10m mask + recurring filter /qtr (only 3 m per month which is easily acchieve on a worldwide scale)
= 10m x rm10 profit = 100 m per qtr
The last time we saw a custom made Beyond mask is selling at USD 100.(3 months ago, price might drop now)
Of course we believe the price will come down with economy of scale to make it more affordable to public.
So a rm10 profit is very conservative.
usd33 for 60 lens is the retail price in us = rm 2 per lens
Estimate 20% profit = 40 sen
long term 1 billion lens /yr x 40 sen = 400 mil profit = 100m /qtr
Total = 400m +100m +100m = 550m per qtr conservative projection.
eps = rm0.81 eps
pe 20 (KLCI index mean for gloves) = rm16.20 POST COVID 2022/23
Meaning investor buying in at 10.50 now will make money even covid is over with a 60% potential return in 3 yrs time.
Not considering share and cash dividend along the way.
As a savvy investor, one should look beyond beyond the horizon to prepare ourself and have the conviction to wait or position to jump in for future run anytime .
Supermax had positioned itself well for short ,mid and long term growth and expansion .Even in the event of post covid Supermax have all the correct ingredient to continue deliver exceptional profit with or without covid.
Look out for Supermax..Look Beyond glove !!!
Disclaimer…This is not an advice to buy or sell. It is just for education and sharing purpose.
CiA do not take accountability for any trading occurring from our information disseminated.