THE glove sector is getting a boost from Gas Malaysia Bhd which made a downward revision of its average selling price (ASP) of natural gas for the distribution segment yesterday.
This follows a 34.21% or RM11.51/MMBtu decrease in ASP to RM22.14/MMBtu for 1Q 2021 from RM33.65/MMBtu for 2020.
However, the caveat is that the natural gas selling price will be reset every quarter in 2021 unlike an annual review as in 2020.
“We expect the lower natural gas selling price to have a positive impact on earnings (about 1%) of rubber glove manufacturers,” projected TA Securities Research analyst Tan Kong Jin, pointing to the fact that natural gas accounts for circa 13% of glove production cost.
With regard to ASP of gloves, the research house noted that feedback from channel checks revealed that ASP is expected to remain on an uptrend in 1Q 2021.
“For instance, Top Glove Corp Bhd’s ASP is expected to increase by 15% month-on-month (mom) in January 2021, 10% mom (February 2021) and at least another 5% mom (March 2021),” wrote Tan in a rubber sector update.
“Meanwhile, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd are expected to revise their gloves ASP by at least 45% quarter-on-quarter in 1Q 2021.”
On the flipside, however, the nitrile raw material cost has increased by about 10% mom in January 2021 while the increase in February and March is expected to be milder.
On the same note, TA Securities Research is also seeing a slight uptrend (about 10%) in nitrile rubber latex prices in the coming months due to seasonally low production in the wintering period (February to May).
“All-in, we believe the increase in ASP is more than enough to offset the increase in raw materials,” justified TA Securities Research.
“As such, we make no changes to our earnings estimates at this juncture for glove companies under our coverage.”
The research house maintained its “overweight” stance on the rubber sector with its top picks being Hartalega (target price: RM23.60/share) and Kossan (TP: RM9.01/share). – Jan 13, 2021
