Highlights

Trying to Make Sense Bursa Investments

Author: Ben Tan   |   Latest post: Sat, 17 Apr 2021, 11:50 AM

 

Supermax: Trading at Forward PE of 3.3 While Sitting on RM3.56 Billion Cash Pile

Author:   |    Publish date:


A couple of days ago I published a post attempting to show a simple way of valuing the business of Top Glove. With very helpful comments from user observatory, we determined that based on different assumptions the range of possible valuations might be quite diverse. Some of the reasons for this are the more complicated dynamics in the business of Top Glove, including in particular some of the recent developments such as the Hong Kong IPO announcement, the massive share repurchases since last year, and the bonus dividend the company has pledged to pay. However, the situation appears a lot simpler when Supermax is concerned, and it seems like this stock's situation best describes the extent of the irrationality of the market right now.

At midday market close, the stock of Supermax was trading at RM4.22. Ten analysts cover the stock (and all ten have "BUY" calls on it), and they have an estimated consensus PAT for FY21 at RM4.15 billion, and for FY22 at RM2.44 billion. Both of these estimates are at relatively low standard deviations. In fact, excluding KAF's bearish estimates, the standard deviation drops by about 30%. KAF have given a PAT estimate for FY21 at RM3.542 billion, which means that they expect the company will earn a total of RM1.642 billion over the next two quarters.

The company has already declared PAT of approximately 1.9 billion for the first half of FY21, so the remainder is RM2.25 billion. Assuming even distribution of profit in FY22, the first two quarters of that financial year should result in total PAT of RM1.22. Thus, the total estimated PAT for the next one year should be RM3.47 billion, or EPS = RM1.275. This means that the 1-year forward PE at present is 3.3.

At the same time, it is well-publicized that the company is sitting on a cash pile of RM3.7 billion. After paying dividend of 3.8 sen per share, the cash pile would have been reduced to RM3.56 billion, or a cash balance of RM1.31 per share, or 31% of the current market price. Some have suggested that Supermax investing this money in literally any positive profit generating business would mean the current market price is nonsensical. In other words, evaluating this position is probably even easier than that of Top Glove, Hartalega, or Kossan, out of the major glove manufacturers.

I made the same calculation for Supermax as I did for Top Glove based on ASP projections of Frost & Sullivan. For Supermax, we know the company's plan is to expand its nitrile glove production capacity to 28.5725 billion pieces by the end of this year, and to 40.5725 billion pieces by the end of 2022. As the company operates based on an OBM sales model and as it partners with government agencies in some of its major target markets, I have assumed utilization rate of 90%. According to analysts' projections, the consensus profit margin for this calendar year is going to be approximately 50%, for 2022 - 35%. For these two calendar years, the net profit should be:

CY2021 = RM4.98 billion (PV @ 7% WACC = RM4.654 billion)

CY2022 = RM2.997 billion (PV @ 7% WACC = RM2.618 billion)

Total for the two years = RM7.272 billion, or RM2.67 per share.

In other words, the cash on hand + the profit for this and the next calendar year, contains 94.3% of the entire current market value of the company. The company must make close to no profit for its entire subsequent history for the current market valuation to make sense.

In this situation, I don't think anyone can blame the glove companies for wanting to be listed on other stock exchanges.

Important disclaimer: Any views expressed are for informational and discussion purposes only. None of this information is intended as, and must not be understood as, a source of advice. It is imperative that you always do your own research and that you make any decisions based on your personal situation and your own personal understanding.

Share this
Labels: SUPERMX

Related Stocks

Chart Stock Name Last Change Volume 
SUPERMX 5.31 +0.21 (4.12%) 77,851,700 

  11 people like this.
 
Ben Tan observatory, thank you for your comment.

Note that I am not claiming other markets lack manipulation or illogical price swings. My only point is that it is logical for companies that have experienced such wild swing from their perceived fair value to want to get listed on other exchanges, hoping they would fair better there.
02/03/2021 4:55 PM
Ikanbilis999 haha so zai here still talking about pe la EPS la hahahahahah
02/03/2021 4:58 PM
Bullrunrun At the same time, it is well-publicized that the company is sitting on a cash pile of RM3.7 billion. After paying dividend of 3.8 sen per share, the cash pile would have been reduced to RM3.56 billion, or a cash balance of RM1.31 per share, or 31% of the current market price. Some have suggested that Supermax investing this money in literally any positive profit generating business would mean the current market price is nonsensical. In other words, evaluating this position is probably even easier than that of Top Glove, Hartalega, or Kossan, out of the major glove manufacturers.

I made the same calculation for Supermax as I did for Top Glove based on ASP projections of Frost & Sullivan. For Supermax, we know the company's plan is to expand its nitrile glove production capacity to 28.5725 billion pieces by the end of this year, and to 40.5725 billion pieces by the end of 2022. As the company operates based on an OBM sales model and as it partners with government agencies in some of its major target markets, I have assumed utilization rate of 90%. According to analysts' projections, the consensus profit margin for this calendar year is going to be approximately 50%, for 2022 - 35%. For these two calendar years, the net should be:

CY2021 = RM4.98 billion (PV @ 7% WACC = RM4.654 billion)

CY2022 = RM2.997 billion (PV @ 7% WACC = RM2.618 billion)

Total for the two years = RM7.272 billion, or RM2.67 per share.

In other words, the cash on hand + the profit for this and the next calendar year, contains 94.3% of the entire current market value of the company. The company must make close to no profit for its entire subsequent history for the current market valuation to make sense.

from Ben Tan source
02/03/2021 7:57 PM
Hoho22 Every day cry and cry also can’t pop the price up. Market dictates the price.
02/03/2021 8:08 PM
OrlandoOilSemiconT EPF is not innocent

Disposed a bit first to make d price drop thn later buy back a lot at cheaper prices

EPF doing price manipulation



3,866,400

Acquired

Direct InterestName of registered holderCitigroup Nominees (Tempatan) Sdn Bhd - Employees Provident Fund BoardAddress of registered holderCitigroup Nominees (Tempatan) Sdn Bhd Level 42, Menara Citibank 165, Jalan Ampang 50450, Kuala LumpurDescription of "Others" Type of Transaction225 Feb 2021

177,500

Disposed

Direct InterestName of registered holderCitigroup Nominees (Tempatan) Sdn Bhd - Employees Provident FD BD (TEMPLETON)Address of registered holderCitigroup Nominees (Tempatan) Sdn Bhd Level 42, Menara Citibank 165, Jalan Ampang 50450, Kuala LumpurDescription of "Others" Type of
02/03/2021 8:49 PM
katsul51 Thanks for article Ben. In my opinion the market has been pressed by the market makers either by RSS or Permitted Short Selling. IF it going to move up than the market makers must make it happen. I think they in Gloves big time. My guess is they would push it up again.
02/03/2021 9:53 PM
kayap1 Thanks Ben for the PV analysis which are very informative. Just a clarification questions, I noticed in Supermax 31-December 2020 BS, there was Prepayment received from customers at 1,477,430 in current liability, any reason you didn't substrate this amount from the cash on ~3.7B?
02/03/2021 9:53 PM
observatory Hi Ben, thank you for your reply.

Actually I just wanted to make a general comment on the sentiment in this forum, where people assume that by listing in “advanced” markets the Malaysian glove stocks could enjoy better valuation. I know given your knowledge you won’t fall for such simplistic assumptions.

This brings me to another sentiment in the forum. Some people believe that glove stock price is down because Bursa has been “manipulated”. My gut feeling is given RSS is limited to only 4%, short selling forces alone and whatever “propaganda machine” they have could not possibly have "pressed" the market down by so much and for so long. Timing wise, RSS only resumed on 1 Jan 2021, but the glove stock price downtrend has already started in Oct 2020.

In fact “downward manipulation” forces, if exist, are far weaker than the “upward manipulation” forces. Almost every analyst, except one or two odd fellows, has issued and maintained buy calls since last year. To me, if the advocacy to sell is manipulation, the advocacy to buy should also be seen as manipulation. Right now the buy calls still far outweigh the sell or even hold calls.

Just to be clear, I know you didn’t say it’s manipulated (just that the market price seems irrational). My opinion above is actually directed against some voices in this forum who blame the decline on manipulative forces.

This leads me to your central idea that given the huge cash pile, the multiple buy calls, the consensus view on the enormous profit for at least in 2021, the market valuation at a forward PE of 3.3X seems ridiculous.

While I don’t have a firm opinion on this, I would interpret this as in aggregate, the market (which is dominated by institutions instead of retail investors) doesn’t trust the analysts. After all, it’s well known that analysts often behave like a dog wagging its tail. Analysts adjust their TPs so that they don’t stray too far from the market price. The proof is while almost all analysts still maintain their buy calls, they have gradually slashed their TPs as stock prices decline. Most just make sure their TPs are 20% to 30% higher than current market prices. If analysts adjust their TPs in order to suit the market price trend, then their inputs to those TPs (projected revenue, margin ...) will be under suspect too.

The same kind of skepticism could be extended to Frost & Sullivan research, including the ASP projection we referred to in Top Glove valuation. After all, Frost & Sullivan is often engaged by companies seeking IPO, and I’ve never read an industry projection from them that undermines the IPO exercise.

Therefore, while the forward PE is at a seemingly ridiculous 3.3X, the market (again, driven by institution fund managers) has heavily discounted it. It doesn’t mean I believe the market is right. It is just how I see the market operates right now.

However, as I always believe, if one is a long-term value investor, and if one believes the company is really undervalued, one should actually welcome any irrational market prices. Over time, the market price will follow the company's earnings growth and dividends.

So, if one is confident that own valuation is right and the market is wrong, just sit back and wait for a few more quarters. The coming quarters will deliver the verdict.
02/03/2021 10:28 PM
FCTITAN Ben Tan with another great article, I know you through your gloves articles, always detailed and cited with sources not some buy/sell call like the sifus out there. Your articles always attract some other level-headed investors that provide some additional information, which makes the comments on your forum interesting to read (even though there are some clowns). What other sectors that you will be making a detailed analysis of instead of only gloves.

Even though I had already cut loss on Supermax, partially due to the fact that the company did not support the share price together with the fact that the boss is buying a luxury condominium at this depressing times (probably for his US expansion needs). I still enjoy reading your articles! Waiting more articles from you.
02/03/2021 10:29 PM
FCTITAN Observatory, your comments on Ben Tan's articles are always full of information, thanks for always sharing your opinions. Much appreciate.
02/03/2021 10:34 PM
BlessedInvestor Benjamin Graham: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” Now market is affected by sentiments and panic selling and margin calls. Value investors and smart IBs should be happy to collect at this mega sales.
02/03/2021 11:03 PM
LaoTzeAhSir Ben Tan, appreciate the enormous effort on your research and put it into elemental words for us to read. you're brilliant and you have lots of readers, trust me.
02/03/2021 11:17 PM
Bamboo Green When canone sold its dairy business, the valuation of the company was below the cash proceeds received, what do you think?
02/03/2021 11:21 PM
Bamboo Green Many expected Canone to give good special dividend, end up gave peanut dividend
02/03/2021 11:23 PM
Bamboo Green Same went to Supermax, huge cash from super extraordinary profit, gave peanut dividends.
02/03/2021 11:24 PM
sell Stanley Thai no $ to buy? Why buy US condo got $?
02/03/2021 11:24 PM
Bamboo Green Everyone can make all kinds of future assumptions based on one’s best available knowledge, information & judgment, we will see if market is wrong, or somebody’s wrong, sooner, if not later
02/03/2021 11:26 PM
Bamboo Green Supermax had been given lowest valuation by market among the big 4 for many years before this pandemic, why?
02/03/2021 11:28 PM
Bamboo Green To be fair, Supermax had been revalued by market with more than 10 folds, way more than any other big 4
02/03/2021 11:30 PM
Bamboo Green We’ll see, but I hope you are right, so that many can make good money
02/03/2021 11:31 PM
Bamboo Green Supermax pre-pandemic share price was RM1++, see where will it go
02/03/2021 11:33 PM
Bamboo Green The other concern is, how the directors is going to use the cash?

Bear in mind that cash is just part of NTA. Canone valuation has not gone up since the cash proceeds received, indeed it went down.
02/03/2021 11:40 PM
sell 1.5 pre-pandemic now after 2 for 1 bonus still >RM 12.

Posted by Bamboo Green > Mar 2, 2021 11:30 PM | Report Abuse
To be fair, Supermax had been revalued by market with more than 10 folds, way more than any other big 4
02/03/2021 11:41 PM
Endgame Everyone know.... Nothing surprise... Waste time to read


...
03/03/2021 12:08 AM
godhand another koon in the making hahahah
03/03/2021 12:13 AM
skyz one should not compare Ben's article to KYY's. Ben's article is more backed with figures. Keep writing Ben!
03/03/2021 9:16 AM
Newbie1990 u just need to know. once covid end, can gloves maintain same profit quarterly ?
03/03/2021 10:36 AM
Newbie1990 lot of money, so what ? does it benefit u ?
03/03/2021 10:37 AM
pjseow Ben Tan, thanks again for the above article on supermx.
03/03/2021 10:37 AM
newbie8080 Below RM3 will be a better buy.
No need to rush.
Blended ASP will be adjusting lower from 3rd quarter 2021 onwards to 2nd quarter 2022 from USD85/1000 to USD45/1000
Backlog orders for 2022 will reduce and normalise to between 3-4 mths from current 12mths.
03/03/2021 11:16 AM
Pinky Covid-19 is supposed to end in 2022 or latest 2023 (my wild guess).

Give you guys an analogy.

Buying into glove stocks now is like buying Mercedes F1 team but with the FIA freezing development of its chassis and engine.

So, maybe you will still sapu 2021 and 2022 championships, because your current car is damn good.

But, what about 2023? You buy a team that will almost guaranteed to win you 2 championships but with the future beyond 2022 murky?
03/03/2021 11:28 AM
Pinky @Tobby +100

I would prefer directors to reward shareholders by returning the excess cash as dividends than to go fight short sellers by doing share buybacks.

If your stock is really quality, the short sellers will tergigit diri sendiri, because other investors will come eat up their selling, knowing that this is a dividend/cash cow stock.
03/03/2021 11:34 AM
Ben Tan Thank you everyone for your comments. I am genuinely surprised that this article has gathered more interest than the previous one about Top Glove.

I will likely have the time to go through everything over the weekend.
03/03/2021 11:51 AM
papparich @Ben Tan. Excellent evaluation. Keep the writing coming.
03/03/2021 1:18 PM
Ikanbilis999 syok sendiri
03/03/2021 1:19 PM
Thomas Poor Grandson Ben! Grandpa Koon sold all his Spermax 3 weeks ago!
03/03/2021 1:22 PM
signn such a no manners person....lol
03/03/2021 1:23 PM
honestlee awesome analysis Ben, this does a lot of justice to the share prices currently being humiliated to the point of being trash counter
03/03/2021 1:47 PM
kayap1 Well done Ben for your always fact driven and neutral writings. Keep it up as rarely see writer in i3 forum try as hard to keep it this way. Not many have the knowledge and time to gather those information for them as a guide to make their own investment decision. Nobody will always right. I hope more people entering the forum, particularly this one will practice constructive argument instead of emotional venting which serve no good for anyone.
03/03/2021 3:14 PM
Picanto FY2019: Interest Expense 20mil, PAT 123mil;
FY2022: Interest Income 150mil

Assuming SPMX has net cash of 5B end of end of FY2021 and earns interest income @ 3% in FY 2022.

Do you see the different? Many didn't realize the unprecedented earnings during the pandemic periods have changed SPMX fundamentally.
03/03/2021 3:34 PM
dusti HI BEN, I ENJOYED YOUR MEANINGFUL ESSAY ON SUPERMAX AND MORE. NO DOUBT STANLEY AND HIS TEAM WILL TAKE NOTE. LIKE IT OR NOT A STRONG SUPPORT GROUP IS FORMING ABOUT YOUR BLOG AND FOR SURE THERE WILL BE BETTER CONVERSATIONS.
WE MUST NOT OVERLOOK THE PSYCHOLOGY OF THE RETAILERS ESPECIALLY WHAT CAN STARTLE THEM AND CAUSE THEM TO PANIC AND ACT IRRATIONALLY. I SUSPECT WHAT IS IN THE MEDIA, READ AND REGURGITATED EARNESTLY OR WITH A SINISTER INTENTION. THERE WERE TWO SCRIBES, ONE WITH THE STAR AND THE OTHER WITH THE EDGE, WHO IN THE LAST WEEK APPEARED TO OVERSTRETCH THEIR NON-FINANCIAL BACKGROUNDS. WHEN OPINIONS WHICH ARE DOUBTFUL GO UNCHALLENGED THEY CAN SPIN OUT OF CONTROL.
LISTING ON ANOTHER BOURSE MAY NOT BE THE ANSWER UNLESS PRODUCTION IS TAKEN NEARER THE CONSUMERS LIKE SUPERMAX.
IF THERE IS MUCH DISCOMFORT LOCALLY, I DOUBT IT IS ABOUT NUMBERS THAT WE CAN WORK ON, BUT RULES WHICH ARE OUTWITH OUR IMMEDIATE CONTROL, BUT WHICH CAN BE WORKED ON DILIGENTLY.
03/03/2021 10:31 PM
DickyMe Gloves Mania ending soon!
03/03/2021 10:58 PM
goldenluck16 Just started today.
03/03/2021 11:28 PM
Michael Teng Ben, another great analysis. Easily one of the best articles produced. Keep it up.
04/03/2021 6:44 AM
GroundZero Post removed. Why?
04/03/2021 10:13 AM
LaoTzeAhSir Ben I have the official complete data of RSS on Topglov, leave your telegram or mail at here, I could provide you if you haven't have one
04/03/2021 9:02 PM
DickyMe Post removed. Why?
04/03/2021 9:03 PM
bpsiah Thank you Ben for your good write up. Not many can write like you do. Right or wrong there are always two sides to a coin. Some may agree while others may not. One thing I am sure of is Gloves like other counters are here to stay for a very long long time. Happy trading.
04/03/2021 9:18 PM
DickyMe Glove will remain as a product but the manic demand will be long gone.

Gloves will be on supermarket shelves along with toilet brush.
04/03/2021 9:21 PM
Ben Tan Thank you once again everyone for your comments.

@kayap1, those prepayments are deposits for future deliveries.

@observatory, I agree completely. I have been able to average down my positions on both Top Glove and Supermax quite substantially from a level at which I considered them at a minimum fair valued when I started entering.

@Picanto, just trying to sum up what you are saying - Supermax can just sit on its cash, not use it for anything, and just based on the interest, the company will be earning more than they were earning before COVID. That's even if they don't earn a single sen from any of their operations.

@LaoTzeAhSir, it's official data coming from Bursa right?
06/03/2021 6:51 PM


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
Stock Screener using Technical and Fundamental criteria
MQ Affiliate
Join the MQ Affiliate Program today to earn rewards
 
 

520  401  580 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 UCREST 0.35+0.055 
 FOCUS 0.15-0.09 
 MINDA 0.155-0.005 
 LKL 0.315-0.025 
 KEYASIC 0.15+0.01 
 RUBEREX 1.47+0.10 
 CAREPLS 2.08+0.16 
 FOCUS-PA 0.015-0.005 
 BJCORP 0.38-0.015 
 HSI-HGK 0.175-0.02 

FEATURED POSTS

1. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!
PARTNERS & BROKERS