Rubber Product Manufacturers

Re: Rubber Product Manufacturers

Postby winston » Fri Jan 11, 2019 8:57 am

CIMB Research overweight on glove makers, likes Kossan, Supermax

In its research report issued on Friday, it said its top picks in the sector are Kossan and Supermax.

“We believe that glove counters deserve to trade higher given its:-
i) businesses’ defensive nature
ii) inelastic global demand for gloves and
iii) robust EPS growth (three-year EPS CAGR of 20.4%)

The downside risks are stiffer-than-expected pricing competition and/or sharp strengthening of ringgit vs. US$.

It estimates the sector’s capacity to rise 17.8% in 2019F to 142.9 billion gloves per annum vs. 13.1% in 2018.

It explained that while headline numbers exhibit aggressive capacity build-up in 2019, investors should take into account three factors:
i) new capacity is commercialised on a gradual basis,
ii) glove makers decommission older plants with new capacity acting as replacement capacity
iii) glove makers can delay additional capacity to prevent a supply glut.

Malaysia’s global market share will grow beyond the current 63%.

China and Thailand glove producers are also expanding their capacity, this is unlikely to be a major threat to Malaysian glove makers. Its channel checks reveal that:
i) most of this expansion replaces less efficient and older production capabilities (20 to 30 years old), as well as
ii) Malaysia glove makers’ technological advances being meaningfully ahead of other countries.


The research house was not overly concerned about the recent strengthening of ringgit vs. US$ (YTD:+1% and +2% since Dec 1, 2018) and cost hikes (0.7% higher gas cost and 10%
minimum wage hike).

“In our view, this will be more than offset by the recent weakening of raw material prices (45-50% of total production cost) such as nitrile butadiene prices (-13% on-quarter in 4QCY18) and ongoing cost efficiency efforts.

“For every 1% weakness in US$ against the ringgit, we estimate that net exposure to glove makers’ earnings is only 0.5%-0.6%. This does not take into account the cost pass-through mechanism that allows glove makers to share cost savings/increases,” CIMB Research pointed out.


Source: The Star

https://www.thestar.com.my/business/bus ... U4J03WV.99
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Re: Rubber Product Manufacturers

Postby winston » Fri Jan 11, 2019 3:59 pm

AmInvestment Research upgrades glove sector to 'overweight'

KUALA LUMPUR (Jan 11): AmInvestment Bank Research has upgraded the glove sector to “overweight” on the back of robust demand growth expectations for FY19.

In a note today, the research house said according to the Malaysian Rubber Glove Manufacturers Association (Margma), the rubber glove industry has been growing at an average of 8–10% for the past 25 years and it expects this to continue in FY19.

It said the expected robust growth is underpinned by the expanding global healthcare sector as well as the increased awareness on the importance of hygienic practices throughout the industry, especially in emerging markets such as India and China.

“Currently, glove consumption per capita for emerging markets such as India and China is still low at around 2–6 gloves compared with circa 100–280 gloves for developed countries.

“Positively, we believe the nitrile-based rubber (NBR) price will continue to decline due to the falling prices of butadiene, which is an input cost for nitrile gloves.

“As NBR is a key input material for nitrile gloves, this is beneficial to the 'Big 3' producers (Top Glove, Kossan, Hartalega) as lower NBR prices will widen the nitrile rubber gloves’ margins,” it said.

Source: The Edge

http://www.theedgemarkets.com/article/a ... overweight
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Re: Rubber Product Manufacturers

Postby winston » Fri Mar 22, 2019 9:53 am

not vested

Rubber Gloves – Malaysia

4Q18 Report Card: Slowing To A Halt

The 4Q18 reporting season saw all glove producers’ earnings coming in within expectations.

Notably, ASPs were flattish as margins mildly contracted.

We think the sell-down in valuations fairly reflects industry fundamentals but there may be earnings downside as this is only the onset of a downcycle owing to demand-supply imbalance.

Maintain UNDERWEIGHT.

Source: UOBKH

https://research.uobkayhian.com/content ... d468732e0a
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Re: Rubber Product Manufacturers

Postby winston » Fri Apr 19, 2019 8:04 am

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PublicInvest downgrades rubber gloves sector to underweight

KUALA LUMPUR: PublicInvest research has downgraded the rubber gloves sector to underweight from neutral, previously as it expects price-earnings contraction to continue.

"Despite the recent selldown, we believe the sector is still trading at unattractive PE valuations and could potentially contract closer to historical average of 21-26x (previously we pegged our valuations at 24-33x forward earnings).

"In addition, we cut the sector’s FY19-20F earnings forecasts by 3-14%," it said in a note.

The research house said there will be capacity expansion in the sector over the near term to meet the surge in demand for latex and nitrile gloves due to the vinyl gloves disruption in 2016/17.

Overall, it expects global supply for rubber gloves to grow by 15% in 2019.

According to PublicInvest, an aggressive expansion plan by Thailand's largest glove maker Sri Trang will negatively impact Malaysian glove makers.

Sri Trang has expanded to a total production capacity of 21.1 billion pieces, and should arrive at 23 billion pieces as at the end of 2019, with a target to achieve 30 billion pieces by end-2020.

The Thai manufacturer has a higher product mix of latex gloves, which will have a stronger impact on Top Glove compared to nitrile-heavy players like Hartalega and Kossan

Sri Trang has also been cutting its average selling price to gain market share, putting pressure on its rivals.

PublicInvest said Hartalega might see margin compression in the coming quarters due to its premium pricing.

"We downgrade our rating on Hartalega and Top Glove to Underperform while Kossan is maintained at Neutral," it said.

Source: The Star

https://www.thestar.com.my/business/bus ... J5ZJ2v5.99
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Re: Rubber Product Manufacturers

Postby winston » Wed Jun 12, 2019 5:05 pm

Rubber Gloves – Malaysia

1Q19 Report Card: Mixed Bag Of Results; Firmer Earnings In Sight

1Q19 reporting season saw glove producers’ earnings coming in within expectations.

ASPs took a hit from heightened competition as earnings contracted 12.7% qoq.

However, we think the sector has bottomed out with demand catching up with slowing
supply growth, limiting downside risk.

With this, coupled with firming sector prospects and organic demand, 2020 offers decent sector earnings growth of 10.8%.

Upgrade the sector to MARKET WEIGHT from UNDERWEIGHT.

Top pick: Kossan.

https://research.uobkayhian.com/content ... 241111623e
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Re: Rubber Product Manufacturers

Postby winston » Thu Jun 13, 2019 7:10 am

Affin Hwang remains positive on rubber gloves for 2H2019

KUALA LUMPUR: Recent earnings results show that companies in the rubber glove sector are not at significant risk of lower margins from rising production costs, says Affin Hwang Capital research.

The research house maintained its overweight call on the sector with Kossan and Supermax as its top picks.

It kept its buy call on Top Glove despite cuttings its earnings forecast and has a sell call on Hartalega due to its rich valuation and forecast lower growth rate.

In 1Q19, sector earnings contracted 4.3% but still came broadly in line or about 22% of Affin Hwang's and consensus full-year forecasts.

The research house said the profit decline was due mainly to a 22% year-on-year decline in profits in Hartalega due to its margins being negatively impacted by the volatility in the ringgit.

Kossan, however, delivered profit growth of 32% y-o-y during the quarter.

Affin Hwang expects overcapacity concerns to ease as its recent channel checks suggest that lead times have normalised to about 45 days from the 30 days earlier this year.

"We have, however, revised lower our capacity growth forecast for 2019 to 13% from 10%, as some manufacturers have partially delayed their targeted expansion plans for
the year," it said.

It added that the weakening of the ringgit versus the US dollar from 4.06 to 4.19 in the past two months will have a positive effect on rubber manufacturers' margins to the lagging effect of their pricing.

"Based on our estimates, for every 1% change in the RM/US$, the impact to the bottom line is around 0.3-0.5%," said Affin Hwang.

Meanwhile, raw material prices are also on the downtrend with nitrile prices trending lower to US$1,050/,t from US$1,145/mt since the start of the year.

Source: The Star

https://www.thestar.com.my/business/bus ... 6qERdDZ.99
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Re: Rubber Product Manufacturers

Postby winston » Fri Jun 28, 2019 9:12 am

Malaysia Gloves Sector

Defensive but not cheap

Bright spot at Kossan; remain NEUTRAL

The operating environment for glove makers has improved with subsiding competition and seasonally lower latex costs in 2H19.

Also, the potential removal of Thailand and Indonesia from the US GSP list would make Malaysia’s non-medical gloves slightly more cost competitive.

Still, we remain NEUTRAL on the sector given high valuations vs 5-year P/E mean.

Kossan remains our top pick for its:
(i) double-digit earnings growth potential;
(ii) biggest exposure to the non-medical segment and
(iii) undemanding 12-month forward 20x P/E vs its 5-year mean of 22x and large-cap peers’ 29-35x.

Risks to our view for Hartalega and Top Glove include exceptionally strong demand and sharp appreciation of USD/MYR.

Source: Kim Eng

https://factsetpdf.maybank-ke.com/PDF/1 ... 365bc1.pdf
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Re: Rubber Product Manufacturers

Postby winston » Fri Jul 05, 2019 8:16 am

Limited downside risk for glove sector

According to Kenanga Research, oversupply concerns appear overplayed, considering that most capacity expansions of rubber glove players are expected to be delayed and staggered.

“With rubber glove players becoming aware of the intense competition since four months ago, some of the measures taken to mitigate the impact of competition were slowing down of new capacity expansion, more measures to maintain margins through automation and other cost reduction initiatives, as well as intensifying sales efforts to penetrate emerging economies.

There is a time lag of two months during pricing adjustments, before the cost increase could be shared out with customers.

Sector valuations are reasonable, trading slightly above the forward mean price-earnings multiple of 23 times. This is backed by a decent two-year earnings compound annual growth rate of 9% over 2019 to 2020.


https://www.thestar.com.my/business/bus ... uiUUsya.99
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Re: Rubber Product Manufacturers

Postby winston » Wed Jul 17, 2019 7:18 am

Minimal impact seen for glove makers

PETALING JAYA: The gas tariff hike of 5.3% is expected to only minimally impact glove manufacturers’ earnings in the third quarter, said CGS-CIMB.

The additional cost from the tariff hikes is expected to be manageable, as gas makes up only 8% to 10% of the total cost for glove makers.

In the event that glove manufacturers fully absorb the additional cost, CGS-CIMB estimates a net increase of 0.4% to 0.5% in total costs. This will result in a minimally negative impact to the sector’s earnings by 0.4% to 1.2% for 2019 to 2021.

“We believe glove makers are likely to pass on these additional costs, given that this is an industry-wide phenomenon and they have a cost pass-through mechanism in place.

“However, the three-day notice period given this time is shorter than expected, as the past three hikes had an average three weeks notice.

“This may result in short-term margin compression as glove makers typically lock in orders and selling prices at an estimated one and a half to three months in advance.

“Nevertheless, we believe the recent decline in key raw material prices should help to offset any near-term margin pressure,” said CGS-CIMB.

In June, natural rubber prices declined 5% month-on-month while nitrile butadiene (NBR) declined 2.3%. Last Friday, Gas Malaysia announced that the effective average natural gas tariff for non-power sectors will be increased to RM34.66 per million British Thermal Unit (MMbtu).

This marks an increase of 5.3% from the average effective natural gas price of RM32.69 from January 1 to July 14, 2019.

The tariff revision is in line with the national rationalisation plan and Gas Cost Pass Through (GCPT) mechanism that includes the revision of piped gas price taking place every six months as indicated by the Energy Commission.

Going forward, CGS-CIMB believes the glove operating environment will turn favourable in the second half of the year, on the back of easing pricing competition and improved supply-demand dynamics.

The research house expects Malaysia to remain a dominant force in the glove sector due to higher operating efficiencies, wider product offerings from better R&D efforts and aggressive capacity expansion plans.

In 2018, Malaysia made up 64% of global glove exports. Global demand growth is projected at 8% to 10% per annum.

“The supply-and-demand dynamics have turned more conducive for glove makers due to efforts to slow down commissioning of new capacity; this should ease the oversupply concerns that have bogged down the sector in the first half of 2019, in our view.

“The glove sector now trades at a forward PE multiple of 26.3, less than one standard deviation above its five-year mean PE of 29.4 times.

In our view, this is justified and the sector will continue to trade above its current P/E given its defensive nature due to resilient glove demand, higher earnings growth as compared to the KLCI, as well as its strong fundamentals with low gearing and high return on equity (ROE),” said CGS-CIMB.

Source: The Star

https://www.thestar.com.my/business/bus ... tCffhc.990
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Re: Rubber Product Manufacturers

Postby winston » Wed Jul 17, 2019 9:59 am

Golden gloves

We believe the glove operating environment will turn favourable in 2H19F, with easing pricing competition and improved supply-demand dynamics.

Robust long-term prospects and inelastic demand for rubber gloves continue to support the sector’s appeal, justifying its premium valuations vs. KLCI.

Maintain sector Overweight, with Kossan and Supermax as our top picks.

We have an Add call for Top Glove, while Hartalega is a Hold.

Source: CIMB

https://brokingrfs.cimb.com/WQyFg_VI4wa ... dHZoA2.pdf
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