By Chan Quan Min
Stanley Thai
Supermax Corporation Bhd’s founder and chairman Stanley Thai refuted claims that the visit by a team of Inland Revenue Board (IRB) officers was politically motivated. The world’s third-largest glovemaker had been visited by a team of 20 IRB officers on the day Parliament was dissolved in April. Thai was speaking at the company’s annual general meeting (AGM) today.
In early May, The Edge reported a conversation with a Supermax employee who was surprised at the number of IRB officers who arrived to conduct the spot-check. According to the employee, there were as many as 20 as opposed to the usual five or six.
The employee said the IRB officers were cordial and left after only a few hours, taking some data with them.
The same news report stated that Thai refused comment on the IRB spot-check when contacted.
Inevitably, rumours have been circulating that the extraordinary IRB visit was politically motivated, because the visit took place after Thai went public with his support for Pakatan Rakyat.
During the Supermax AGM, Thai was more forthcoming. He said that the IRB spot-check was the third such visit in seven years. During the first two visits, the officers were far more thorough, conducting a tax audit of every company in the group.
This year’s IRB visit, according to Thai, involved a more targeted inspection of the company’s books and records.
“The third time round they were looking at specifics,” said Thai, referring to the IRB’s scrutiny of the group’s transfer pricing arrangements.
Thai said that the IRB suspected that profits earned at Supermax’s overseas subsidiaries were not being repatriated back to the group’s headquarters here in Malaysia and consequently, not subject to Malaysian corporate taxes.
According to Thai, the locations where the rubber glove maker has distribution subsidiaries — the United States, Canada Germany, and Brazil — were all considered high tax jurisdictions, especially when compared to Malaysia.
As a result, it does not make financial sense to keep profits parked overseas for the purpose of tax avoidance.
Instead, a large portion of profits is often retained outside the country because of obligations to overseas business partners. Regardless, the group has pledged to always maintain transparency in tax matters.
This arrangement to retain a part of sales earnings overseas may seem odd when compared to the other major rubber glove companies, for instance, Top Glove, but for Supermax it is only logical as they are an OBM (original brand manufacturer) not a OEM (original equipment manufacturer) like the other rubber glove majors, said Mandy Teh, an analyst at Affin Investment Bank.
Supermax markets their natural rubber and nitrile gloves using their own in-house brands, making them unique among the major glove makers.
Finally, Thai claimed that, “it is not true that I got audited by the IRB due to my support for Pakatan Rakyat. I don’t believe so. It’s more of a routine audit.”
Minority shareholders support Thai
When canvassed for their opinion on the company’s dismal performance on Bursa Malaysia, shareholders appeared to be in two minds about Thai’s blatant support for the opposition alliance.
From the applause, it was clear that many lauded Thai for his courage in voicing his political affiliations and reaffirming them at the AGM. However, they also thought that his support for Pakatan Rakyat had caused the depressed valuations for the stock in the open market.
A Hong Leong Investment Bank report called the stock a laggard because its valuations are exceedingly cheap compared to its peers, at a price-to-book ratio of 1.55 and price-to-earnings ratio of 9.5, which translate into steep discounts of 55% and 35% to industry respectively.
Price war looming
Ominously, Thai signalled a looming share price war in the rubber glove sector in the second-half of this year, as all the major players add production capacity to keep up with competition.
Thai admitted that in the coming years, profit margins for the industry, and for Supermax will be compressed.
He predicted that smaller glove makers would have to bear the brunt of slimmer profit margins.
“Those companies that are relying on a few customers, when the market is not strong, those will be the companies that are vulnerable.”
When asked if his statement was hinting at a future takeover of a smaller glove manufacturer, Thai did not offer a conclusive answer, while his accountant, Andrew Lim, smiled at the suggestion.
Stock downgrade
Ian Wan of Alliance Research downgraded Supermax from a ‘buy’ to ‘neutral’ today, citing weaker than expected results and slower profit growth when compared to preceding years.
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