KUALA LUMPUR (May 10): Supermax Corp Bhd’s (KL:SUPERMX) plan to take full control of its loss-making Canadian unit will drag on its balance sheet and income statement, Kenanga Investment Bank flagged.
The additional 33% equity in Supermax Healthcare Canada Inc, which imports gloves into Canada, will add RM17 million losses to the group’s bottom line on a full-year basis, Kenanga said in a note. However, the capital outlay will only put a minor dent to its net cash of RM1.5 billion, it noted.
“We are negative on the latest development” at a time when the sector is still grappling with subdued average selling prices, rising costs and low plant utilisation amid intense competition, Kenanga said and maintained its "market perform" rating, equivalent to a "hold" call.
The research house, one of seven covering Supermax, cut its net profit forecast by 54% for the financial year ending June 2025 to account for losses from the acquisition of equity in the Canadian unit, but left this year’s estimate unchanged.
Analysts are broadly cautious amid supply glut and weak demand due to overbuying during the pandemic. A majority of five recommend "hold" and only two have "buy" ratings, according to Bloomberg. The consensus 12-month target price is 95 sen, implying a 6.7% return from its last price.
“We expect the operating environment to remain challenging in subsequent quarters, plagued by massive oversupply,” Kenanga said. The demand-supply situation will only start to head towards equilibrium in 2026 without new capacity while global demand rises further," the house noted.
Demand for gloves is projected to expand 30% to 390 billion pieces this year due to low base of comparison in 2023, and resume its organic growth of 15% in subsequent years, Kenanga elaborated. However, this would mean an excess capacity of 212 billion pieces in 2024.
Persistent overcapacity would keep prices low and depress plant utilisation, plaguing the industry further, Kenanga added.