Established in 1987, Supermax Corporation Berhad started operations as a glove trading and distribution company. Currently, it manufactures, distributes, and exports nitrile and natural rubber gloves to over 165 countries globally. It has also ventured into the contact lens and face mask businesses recently.
Supermax had a good year in 2020. Its share price skyrocketed 11 times from RM0.69 to RM7.77 year to date (as at 10 December 2020). The impressive capital growth was due to the COVID-19 pandemic and Supermax’s business model which mostly sells its own-brand gloves, compared to its peers who mostly adopt an original equipment manufacturing (OEM) model.
Generally, own-brand gloves earn higher margins than OEM ones. As a result, Supermax posted another record quarter for its Q1 2021 financial results by registering an almost 32-fold increase in its quarterly earnings to RM789.5 million.
Here are five things I learned from the 2020 Supermax AGM:
1. Revenue increased by 38.6% year-on-year to RM2.1 billion in 2020 while net profit excluding one-off items improved more than six-fold to RM495.5 million over the same period. The much better performance was on the back of the COVID-19 pandemic where demand for and the average selling prices of gloves both surged. Given the scarcity of raw materials, chairman Albert Cheok expects the average selling price of gloves to further grow by 3% on a monthly basis in the following year.
2. Cheok responded to Minority Shareholder Watch Group (MSWG) that Supermax’s production lines are currently running 24/7 to fulfil the heightened glove demand. The operations are paused for routine maintenance only. The company’s production lines have been booked for almost the entire of 2021. If an order is placed today, it will only be fulfilled in a year’s time.
Supermax is also targeting a dual listing on the Singapore Exchange in at least six months’ time to raise funds and appeal to more regional and global institutional investors.
3. Supermax will spend RM1.2 billion to expand its glove production capacity from 24 billion pieces in 2020 to 36 billion pieces in 2021 and 48 billion pieces in 2022. The plan is rather aggressive as mentioned by MSWG. The additional capacity is to cater to the current backlog. Older production lines will also be revamped to improve their capacity and efficiency.
According to Cheok, there will not be an excess supply because of the new norm; glove usage has surged in both medical and non-medical sectors due to increasing healthcare and hygiene standards. Cheok foresees the level of glove consumption will sustain at elevated levels even after COVID-19 vaccines are commercialised.
4. Supermax ventured into the face mask business in 2020. The company can produce up to 192 million face masks annually. The business is still at an initial stage to build capacity, customer base, and presence. This venture generally targets existing customers who already purchase gloves from the company. The motive behind this venture is to guard Supermax’s brand and improve its relationship with the public and customers, rather than an economic one.
In my opinion, effort is better spent focusing on Supermax’s strength, which is glove manufacturing in this case. The entry barrier of the mask industry is a lot lower than that of the glove industry as it costs a lot less to manufacture masks than gloves.
5. Cheok mentioned that Supermax will balance between seeking growth and rewarding shareholders with dividend. Profits will be allocated for capital expenditure to expand the business, which will ultimately create more long-term shareholder value and increase shareholder dividends.
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