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7 things I learned from the 2019 Supermax AGM

Established in 1987, Supermax Corporation Berhad manufactures, distributes, and sells natural rubber and nitrile gloves. The company started off trading and distributing natural rubber gloves and subsequently ventured into glove manufacturing and contact lens manufacturing in 1989 and 2014 respectively. It currently owns 12 glove factories and exports gloves to over 165 countries.

I came across an article that discusses how the founder, Dato’ Seri Stanley, his wife, Datin Seri Cheryl Tan Bee Geok, and his sister-in-law, Tan Bee Hong, were found guilty of insider trading in 2018 and are appealing their sentences. The couple was also disqualified from the board. I was curious about the performance of the company without its founder at the helm, and I decided to attend its annual meeting to find out more.

Here are seven things I learned from the 2019 Supermax AGM:

1. Revenue improved 17.9% year-on-year from RM1.3 billion in 2018 to RM1.5 billion in 2019. The breakdown of 2019 revenue by region is as follows:

Supermax’s glove portfolio comprises 70% own-brand gloves and 30% original equipment manufacturing (OEM) gloves. It manufactures nitrile and natural rubber gloves on a 60:40 ratio. 90% of its gloves are sold to the medical segment.

2. Minority Shareholder Watch Group (MSWG) also questioned the appropriateness of Supermax’s founder, Dato’ Seri Stanley Thai, of attending an analyst and media briefing in September 2019 as he is no longer a board member. Chairman Albert Saychuan Cheok added that Dato’ Seri Stanley is no longer involved in the day-to-day management and operations of the company, and Supermax is likewise not involved in the personal court case that the founder is currently facing. It was not clearly mentioned how the founder could still make his way to the briefing though it was not intended for him to be there. Cheok alluded that analysts and media still depend on and trust the founder for information related to Supermax. It can be seen that the founder still exerts some degree of influence over Supermax as he was still bombarded with questions and surrounded by a number of shareholders at the end of the AGM.

3. Supermax has spent about RM100 million in the contact lens segment as of November 2019, while total revenue contribution from the segment remained small at about 2%. 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. They have budgeted RM15 million for the near future for marketing and advertising instead of adding more manufacturing capacity.

4. In 2019, the utilisation rate of its glove manufacturing plants stood at about 75% and will further increase to 90% upon the completion of the plant expansion by 2020. Supermax has budgeted RM1.1 billion to be spent over the next five years as capital expenditure to improve operational efficiency and productivity.

5. MSWG noted the 50.7% year-on-year increase in other operating expenses to RM202.7 million in 2019. Cheok shared that the increase was due to the hike in utility costs particularly natural gas. Supermax would also consider sourcing energy from biomass to reduce the reliance on natural gas in the future. In a separate question from MSWG, he answered that two executive directors were paid in U.S. dollars as they are operationally based in the U.S.

6. The chairman views that the U.S.-China Trade War is a zero-sum game for all. Due to the higher tariffs in the U.S., the Chinese glove manufacturers divert their products at cheaper prices to other regions like Europe. Because of this, Supermax may gain more revenue from the U.S. in the short term but will face fiercer competition in the Europe.

7. The chairman painted a long-term picture and asked shareholders to ignore the short-term noise when a shareholder pointed out Supermax’s share price had been going south for more than a year: ‘I assure you, my dear investors, Supermax is on an upward track. We hope not just to be second best, we will be the top glove and lens manufacturer in the world one day. That’s our commitment, our promise to shareholders.’ While it’s good to see optimism from the management, no definite timeline was laid down and it remains to be seen if Supermax would achieve the chairman’s stated goals.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

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Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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