Supermax gains on earnings potential of US facility amid efforts to boost glove production
KUALA LUMPUR (Dec 5): Supermax Corporation Bhd (KL:SUPERMX) shares climbed on Thursday, mostly due to an improved outlook and earnings potential of the company's US facility, amid recent efforts to boost glove production there.
The counter jumped over 12% or 11 sen to 99.5 sen, before settling at 98 sen, valuing the group at RM2.66 billion. Over 75 million shares changed hands.
CIMB Securities upgraded its recommendation on the counter from 'hold' to 'buy', with a target price of RM1.15 (0.7 times calendar year 2026 price-to-book value).
"In our view, the market may be underestimating the profitability potential of Supermax's US glove manufacturing facility, in light of the US Centers for Medicare and Medicaid Services (CMS) proposal (to include nitrile gloves under its payment adjustment scheme under the Medicare and Medicaid programmes)," said the research firm in a note on Thursday.
"Our upgrade is premised on the improved operating environment for glove makers, including Supermax, as well as better prospects for its US glove manufacturing facility, with ongoing US government initiatives to drive US glove production," it added.
The house noted that the CMS intends to propose the modification for implementation from Jan 1, 2026.
Under this scheme, buyers will be compensated for the additional costs of purchasing domestically manufactured gloves.
This move aims to promote domestic manufacturing of nitrile gloves in the US, as nitrile gloves are a critical personal protective equipment (PPE), while domestic production is costlier owing to higher operating expenses.
"With this scheme, we believe that demand for US domestic manufactured gloves will be robust, leading to high demand for Supermax's US-produced glove products. This will also allow Supermax to sell its products at higher average selling prices (ASPs) to pass on the additional manufacturing cost," it said.
According to CMS, the current ASP differential between US domestically manufactured gloves and imported ones stands at US$0.13 per piece, which is estimated to be a 35% to 38% premium to the ASPs of Malaysian glove makers, noted CIMB Securities.
The CMS said over 95% of nitrile gloves sold in the US are imported. Furthermore, the CMS estimated that as of 2024, there were only three manufacturers of nitrile gloves in the US, meeting just 0.05% of US nitrile glove demand.
Meanwhile, Supermax expects commercial production of gloves at its US manufacturing facility to begin in January 2025, added CIMB Securities.
Initially, it noted that Supermax will commission the first half (2.4 billion pieces per annum) of the capacity of its first phase (total annual capacity: 4.8 billion pieces), with the remaining half slated to be operational by the second financial quarter ending Dec 31, 2025 (2QFY2026).
In total, Supermax’s new US plant will comprise four phases, with a total installed capacity of 19.2 billion pieces per annum, the research firm said.
"As all of this new capacity is intended to cater to domestic US glove demand, the commissioning of Supermax’s new US plant is timely, aligning with the growing emphasis of US government policies to catalyse more domestic manufacturing of PPE items, including gloves," said CIMB Securities.
Notably, Supermax has earmarked capital expenditure of US$350 million (RM1.55 billion) for the first phase of its US plant, with capital commitments of US$216 million already paid and/or contracted for this project as of Nov 22, 2024.
Supermax had a net cash position of RM1 billion as of end-1QFY2025.
CIMB Securities expects Supermax to post stronger quarters ahead, especially from 3QFY2025 onwards.
"We understand that the company expects all orders that were earlier contracted at lower ASPs earlier to be fully shipped by end-2QFY2025.
"Thus, we expect the company to begin shipping more orders at higher ASPs, especially to the US market, with the implementation of higher US tariffs on China-imported gloves from Jan 1, 2025 onwards (rising to 50% from 7.5% currently)."
In addition, the house said the company should benefit from the recent weakening of the ringgit against the US dollar (by 6% to 7% quarter-to-date) as well as higher operating leverage. Nitrile gloves made in US have higher production cost, leading to limited supply.