Top Story : Rubber Gloves – Still positive on glove manufacturers Overweight
Sector Update
Top Glove : Fair value at RM15.50 Outperform
Kossan : Fair value at RM10.74 Outperform
Adventa : Fair value at RM4.34 Outperform
Hartalega : Fair value at RM7.93 Market Perform (up from UP)
♦ Despite yesterday’s pullback, YTD share prices of the glove manufacturers are still up 9.2-46.8% compared to 4.9% for the FBM KLCI and 5.8% for the FBM100. We believe the pullback was largely over concerns such as escalating raw material prices (e.g. latex) and the weakening US$ (against RM).
♦ While such concerns are valid, we believe glove manufacturers would be able to pass on the higher raw material prices and weaker US$ against RM to their customers, leaving growth prospects relatively intact.
♦ We expect demand to remain strong given that gloves are the most basic and affordable form of protection against viruses in the healthcare industry and coupled with rising awareness in healthcare standards for highly-populated countries (e.g. China and India), should help boost demand for medical gloves.
♦ No change to our earnings forecasts for now.
♦ We continue to like Top Glove (FV = RM15.50) for its position as world’s largest glove producer and Kossan (FV = RM10.74), which is currently trading at CY10 PER of 9.5x. This, in our view, is undemanding given that Kossan’s FY09-12 net profit CAGR is 13.1%.
♦ We have retained our Overweight stance on the sector as demand prospects for medical gloves remain favourable. We maintain our Outperform call on Top Glove, Kossan and Adventa. We upgraded our call on Hartalega to Market Perform from underperform previously as the recent correction in share price means that valuations are now not overly stretched.
RHB Equity 360° ( Rubber gloves, Banks, Public Bank; Technical: Berjaya Corp)-16/04/2010
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