Table 1: Rubber Glove Sector ValuationsFYE
Price FVEPS(sen)EPS growth(%) PER (x)P/NTA(x)P/CF(x)GDY(%) Rec(RM/s) (RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Hartalega^ Mar 5.45 5.64 55.7 59.1 16.9 6.0 9.8 9.2 2.2 6.0 4.9 MPKossan Dec 3.40 4.25 44.7 47.2 20.3 5.6 7.6 7.2 1.8 8.6 1.8 OPAdventa^ Oct 2.55 2.47 33.8 43.3 53.2 28.1 7.6 5.9 1.6 5.4 5.8 MPTop Glove Aug 5.70 5.40 41.2 45.9 0.8 11.2 13.8 12.4 3.0 11.0 4.4 UP
Sector Avg 12.8 9.6 10.7 0.0
^ FY10-11 valuations refer to those of FY11-FY12
Share prices reacted strongly to possible revision in selling prices.
The share prices for glove manufacturers were generally up 0.4-10.1%, ascompared to -0.1% for the FMB KLCI and FBM100 respectively (see Table2). We believe the strong share price performances were largely due thenews that the Malaysian Rubber Glove Manufacturers’ Association(“Margma”) had urged its members to raise glove prices to pass on thehigher raw material costs and continued weakening of the US$ against RM.
Normalising in demand as new capacity comes in.
Since the H1N1was declared almost a year and a half ago, there was overwhelmingdemand for examination gloves that resulted in many MNCs stocking uptheir inventory levels in order to prepare for another pandemic. However,the industry is currently facing normalising in demand just as new capacityis coming in. At the same time, as latex prices have been on the risingtrend. Customers are fully aware that there is additional capacity and havebeen less willing to absorb higher prices and opted to run their inventorylevels on the anticipation that the latex price would eventually come down.
Still cautious on the near-term outlook.
In our view, the near-termoutlook for the rubber glove manufacturers remains challenging due tothe slowdown in orders for rubber gloves as latex price remains high(+27.8% YTD) while the US$ remains soft against RM (-8.8% YTD). Webelieve this will make it difficult for some glove manufacturers to adjustprices.
1) Sharp surge in raw material (latex) and/or energy (natural gas)prices, which may result in margin squeeze; 2) An appreciating RMagainst the US$; and 3) Execution risk from capacity expansion.
We are keeping our earnings forecasts for the glovemanufacturers unchanged.
We have retained our
stance on the sector asits near-term outlook still remains challenging for some glovemanufacturers. We maintain our
call on Top Glove and
call on Adventa. We reiterate our
call onKossan as nitrile gloves make up a higher propotion of sales and demandfor nitrile gloves has remained steady. As for Hartalega, the potentialupside to our fair value is now in line with our expected market return. Assuch, we have downgraded our call on the company to
Still Cautious On Near-Term Outlook
M a l a s i a
M A R K E T D A T E L I N E
P P 7 7 6 7 / 0 9 / 2 0 1 1 ( 0 2 8 7 3 0 )
21 October 2010
RHB ResearchInstitute Sdn Bhd
A member of theRHB Banking Group
Company No: 233327 -M
Please read important disclosures at the end of this report.
Chart 1: RelativePerformance To FBM KLCIChart 2: Monthly AverageLatex Price (Sep’09-Sep’10)
David Chong, CFA(603) 9280 email@example.com