Updates on its US facility and worker policy
? SUCB is investing RM2.3bn (US$550m) to construct a glove manufacturing facility (19.2bn pieces p.a.) in the US, to cater for local glove demand there.
? We are positive on this matter. While margins should be lower, production in the US should aid in catering for local demand with no labour-related issues.
? SUCB launched a new foreign worker management policy, which is in line with ILO standards. It has also raised the minimum wage for its workers.
New plan to build manufacturing facility in the US
Supermax Corp (SUCB) recently announced plans to build a glove production facility (total capex of US$550m/RM2.3bn) on a 215-acre land in Brazoria County, Texas, US. This new facility (19.2bn pieces per annum) will be built across four phases, with each phase having an annual production capacity of 4.8bn pieces. The first phase (US$350m/RM1.5bn) will begin construction in 1QCY22 (3QFY6/22), with progressive commissioning from end4QCY22F (2QFY23F) onwards. In our view, SUCB would have no issue funding this project as it currently has a net cash position of RM3.2bn (as at end-1QFY22).
Malaysia glove capacity expansion plan remains on schedule
Prior to the announcement of its US manufacturing facility, we expected SUCB’s total production capacity to progressively rise by 26% to 48.4bn pieces p.a., with the addition of 5 new glove plants (Plants 13,14,15,16 and 17) by end-FY6/23F, assuming no delays. Including the upcoming capacity from the first phase of the new US glove facility, SUCB’s total annual production capacity will now grow by 103% to 53.2bn pieces by end1HFY6/23F. Note that construction of Plants 13,14,15,16, and 17 are currently ongoing.
Updating US CBP of improvements made under new policy
SUCB recently rolled out a new foreign worker management policy to ensure its human resource and migrant workers practices are on par with International Labor Organisation (ILO) standards. SUCB has settled all remediation payments to its active workers and had commenced remediation payments to ex-workers since Sep 21 (targeted to complete by Mar 22F). SUCB also raised its minimum wage to RM1,400/month for all workers (current minimum wage set under Malaysian Employment Regulations is RM1,200/month). SUCB is in the process of updating the US CBP of enhancements made under its new policies.
Positive on both matters; No changes to our Hold call
In our view, setting up a glove plant in the US would pay dividends in the long term. While cost of production is higher, we think that: i) SUCB can cater for strong glove demand from the US (~30% of global glove demand) with no concerns of forced labour issues, and ii) US-based clients will be more inclined to purchase from SUCB as a local producer. We also believe that implementing a new foreign worker management policy is a step in the right direction for SUCB. This will improve its case in lifting the US CBP ban on glove imports from SUCB due to forced labour issues. We make no changes to our FY22-24F EPS at this juncture, as we await further details on both matters. We also keep our Hold call and TP of RM1.30 (13.6x CY23F P/E).