KUALA LUMPUR: Affin Hwang Capital has upgraded the rubber products (gloves) sector to “Overweight” from “Neutral”, despite the weak nine months of 2019 results.
In a research note today, Affin Hwang Capital said it believes the worst was over and earnings growth would resume in 2020.
It said higher production costs and labour issues were the two common factors that led to the earnings disappointment.
“We believe that the companies are already addressing the issues, and we are expecting better performance starting the first quarter of 2020.
“We make some changes to our preferred picks, as Top Glove Corp Bhd and Kossan Rubber Industries Bhd are now our top “Buys” for the sector,” the research house said.
Besides, the gloves makers would likely benefit from stronger demand from the US after the imposition of a 15% tariff on Chinese imported gloves, it said.
“Given the better prospects, we think that sector valuations could re-rate as the earnings start to kick in.
“The sector is currently trading at around its historical average, which we believe is undemanding given the improving prospects,” it added. – Bernama
