RHB optimistic on rubber glove sector
RHB Research is optimistic on the rubber glove sector, saying market conditions are tilting in favour of glove makers.
In a research note today, RHB Research said it is maintaining an 'overweight' call on the sector owing to favourable raw material prices, the strengthening US dollar, minimal impact from a potential natural gas cost hike and resilient gloves demand.
"We believe the 14.2 per cent year-to-date decline in raw material prices and the dollar strengthening to RM3.30 last August from RM3.05 in January will bolster glove makers’ earnings margins moving forward.
"Meanwhile, we expect a potential natural gas hike to have minimal impact on glove makers as energy costs only make up eight per cent to 10 per cent of total production costs while rubber gloves demand is expected to remain intact over the next few years due to a shift in preference towards synthetic nitrile
gloves," it said.
The research house has buy recommendations for four stocks under its coverage -- Hartalega Holdings Bhd, Top Glove Corporation Bhd, Kossan Rubber Industries Bhd and Supermax Corporation Bhd.
The sector registered healthy results for the quarter ended June that were well within expectations, especially Hartalega, Kossan and Supermax which delivered commendable first half bottomlines, mostly boosted by easing prices of raw materials as well as rising production capacity, except for Top Glove.
Going forward, it expects the glove companies’ expansion plans to propel earnings growth, especially Kossan and Supermax which are focusing more on the higher-margin nitrile glove segment, targeting to increase their nitrile capacity by 1.4 billion pieces and 6.4 billion pieces by end-2013, respectively.-- Bernama