SUPERMAX CORPORATION BHD SUPERMX (7106)'s new US plant to benefit from lower freight cost, says CGS-CIMB Research

 SUPERMAX CORPORATION BHD  SUPERMX (7106)'s new US plant to benefit from lower freight cost, says CGS-CIMB Research

CGS-CIMB Research said that for the first phase of its US plant, Supermax had earmarked a total capex of US$350 million (RM1.5 billion).

KUALA LUMPUR: Supermax Corp Bhd's plans to build its new United-States (US) based manufacturing facility in Texas will bring its glove supply nearer to its US-based clients resulting in lower freight costs and faster delivery time.

CGS-CIMB Research said that for the first phase of its US plant, Supermax had earmarked a total capex of US$350 million (RM1.5 billion).

The firm said this includes equipping the plant with cutting-edge capabilities via expanded use of artificial intelligence (AI) and robotic engineering (lower usage of workers and better efficiencies).

"We estimate that Supermax will have no issues in funding the first phase of its US plant, given its net cash as at the end of the second quarter (Q2) financial year 2022 (FY22).

"We believe the subsequent phases will cost less per phase – we estimate RM500 million to RM600 million per phase," it said.

At this juncture, CGS-CIMB Research is slightly positive on Supermax's upcoming US plant, assuming strong execution, no delays in construction works, and no cost overruns.

Also, it said this plant would not likely face the social compliance issues affecting current existing facilities in Malaysia.

"On top of higher construction costs (at least 100 per cent more than a similar plant in Malaysia), the production cost for a plant in the US would be higher due to higher waste management and labour costs.

"We estimate the US plant will likely be loss-making at the initial stages until certain economies of scale are achieved (all 12 lines commissioned, with more than 65 per cent utilisation rate)," it said.

Overall, CGS-CIMB Research made no changes to its financial year 2022 (FY22) to FY24 earning per share (EPS) estimates, pending further updates on this matter (tax incentives, progress updates and commissioning of new lines).

Hence, the research house maintains its Reduce call on Supermax with an unchanged target price of 98 sen.

"In our view, current valuations (8 per cent premium to its five-year mean) have yet to capture its weaker-than-expected earnings outlook (in FY22-24F) and ongoing environmental, social and governance (ESG) concerns (foreign labour aspect)," it added.

https://www.nst.com.my/business/2022/03/784814/supermaxs-new-us-plant-benefit-lower-freight-cost-says-cgs-cimb-research