AFFIN Hwang Capital is maintaining the rubber products (gloves) sector at overweight due to improving prospects and likely stronger earnings growth for 2020.
In a research note today, the research house said demand for rubber gloves continues to surprise on the upside, as some manufacturers have locked in orders until the end of 2020.
“Although manufacturers have increased their utilisation to above 90%, it is still insufficient to satisfy the spike in demand.
“We believe that there is also a high possibility that manufacturers will continue to increase the selling price by another 5-8% for the fourth quarter of 2020,” it said.
Apart from the strong demand, the recent decline in oil prices could also lead to lower raw material prices, it said.
“Given the decrease in oil prices by 80% since the beginning of the year, we are expecting lower rubber prices for the next few months.
“Manufacturers will likely hold on to the margin gain from the lower raw material prices, in our view,” it added.
Affin Hwang Capital said it has revised upwards the earnings growth for the sector in 2020E to 21.5% from 15.6%. — April 29, 2020, Bernama
