KUALA LUMPUR: Affin Hwang Capital Research has raised its earnings growth forecast for the rubber glove sector, expecting the sector to achieve record earnings in 2020.
In a research note today, the research house also maintained its “overweight” call on the rubber glove sector, with Top Glove Corporation Bhd and Kossan Rubber Industries Bhd as its top “buys” at higher target prices (TP) of RM12.60 from RM8.70, and RM8.50 from RM7.00, respectively,
It also raised its call on Hartalega Holdings Bhd to “buy” from “hold” at a higher TP of RM10.20 from RM7.70, and maintained its “hold” call for Supermax Corporation Bhd with higher TP of RM4.20 from RM2.20 previously.
Affin Hwang said the rubber glove sector had continued to outperform the market, as the stock price rose by 32% over the past two weeks, outperforming the benchmark FBM KLCI by 32.5 percentage points.
It said demand for rubber gloves had continued to be on the upside, with some manufacturers accepting orders for delivery one year in advance with 20% deposits.
“The strong demand has also given manufacturers the flexibility to continue raising selling prices, which we are now forecasting to rise 5%-8% per month starting from June, higher than the 1%-2% per month we forecasted earlier,” it said.
Although selling prices would only be confirmed one to two months prior to delivery, Affin Hwang said buyers are still likely to take delivery or risk losing their deposits.
With the current robust demand, the research house believes that the sector should achieve record earnings in 2020.
“Until Covid-19 is no longer a threat, the robust demand for rubber gloves is likely to stay.
“Given that we are only expecting a 10%-12% increase in (effective) capacity in 2020, we believe that there will still be a shortage of gloves in 2021, although the problem is not as severe as the current situation,” it said.
As such, the research house forecasts average selling price to increase by around 3%-5% for the whole of 2021.
“However, we believe that demand could ease if a vaccine for Covid-19 is available to the public,” it added.
At the lunch break, Top Glove’s share price rose 20 sen to RM10.58 with 8.67 million shares traded, while Kossan added two sen to RM7.70 with 3.47 million shares transacted.
Hartalega advanced 14 sen to RM9.25 with 5.47 million shares traded while Supermax added 38 sen to RM4.35 with 21.33 million shares changing hands. – May 18, 2020, Bernama
