Supermax says Chinese players likely taken over global glove leadership as it posts another loss-making quarter

KUALA LUMPUR (Feb 20): Supermax Corp Bhd reported a net loss of RM44.36 million for its second quarter ended Dec 31, 2023 (2QFY2024), extending the group’s loss-making streak to five consecutive quarters, as glove demand and average selling prices (ASPs) remained weak amid heightened competition.

The latest net loss is 21 times higher than the RM2.05 million it incurred in the immediate preceding quarter of 1QFY2024, though it has narrowed by 59% from the RM108.07 million it posted for 2QFY2023.

Loss per share stood at 1.72 sen compared with 2QFY2023’s 4.01 sen, according to the group’s disclosure to the local exchange.

Quarterly revenue shrank by 16.7% to RM145.55 million from RM174.79 million in 2QFY2023. The group attributes this to continued weak demand as buyers run down overstocked positions post-pandemic and low ASPs due to stiff competition, particularly from Chinese manufacturers capitalising on low utility costs.

The reduced year-on-year losses were mainly contributed by significantly lower forex losses and higher interest income.

In contrast, the widened quarter-on-quarter losses were not only due to a revenue decline from the RM145.55 million recorded for 1QFY2024, but also a sizeable impairment for stocks, and as it recorded forex losses instead of forex gains.

For the first six months of FY2024 (1HFY2024), the group’s net loss dropped 54.7% to RM46.41 million from RM102.36 million in 1HFY2023, while revenue dropped 23.5% to RM323.52 million from RM422.75 million.

Unfavourable outlook to persist in 2024, with continued squeeze on margins

On prospects, the group acknowledges that the rubber glove market remains lacklustre with an unfavorable outlook for 2024 due to ongoing demand-supply dynamics post-pandemic.

“At the two most recent large international trade shows, the takeaway was that the oversupply situation is expected to moderate gradually over an extended period as more and more smaller players exit the market, while bigger players scale back expansion and retire older factories and production lines.

“The industry is basically going through a consolidation stage at this time,” the group said.

Moreover, the group notes that ASPs remain suppressed, with manufacturers from China proving to be daunting competitors and believed to have taken over the global leadership from Malaysia, at least in terms of pricing.

Supermax does not expect to see a significant improvement in performance for the rest of the year 2024 due to the high volume of high-priced stocks at its overseas distribution centers.

Supermax said cost management measures have helped improve the group’s profitability to an extent, but high material costs and utility costs, currently and going forward, are expected to result in a continued squeeze on margins.

Supermax has shut four of its older plants over the last two years, though its plans to build six new modern and more efficient manufacturing blocks are still in place, with production lines being installed gradually at a pace that takes into account the current and expected market conditions.

But construction of the group’s US plant is still underway, as Supermax believes the strategic move will position the group favorably when increasing barriers to imports are put in place and higher import duties are imposed.

Thus, Supermax expects to be in a strong position to take advantage when the glove market regains its vibrancy in the next four to five quarters as it refreshes more of its production capacity by investing in automation technology to minimise costs and reduce reliance on foreign workers.

Shares in Supermax finished one sen or 1.1% higher at 92 sen on Tuesday, giving the group a market capitalisation of RM2.5 billion. Over the year, the stock has risen 15.19%.