Rubber Products (Gloves, Condoms etc)

[winston]

Marketing Feedback

The majority of the investment community we met during our recent roadshow agreed with our view: bearish short term, but positive on the long-term prospects.

Clients agreed that there is a slight supply glut in the market leading to margin compression. However, inelastic demand growth will alleviate this in the long term.

We remain Neutral on the sector, with Supermax and Kossan as our top choices

Source: CIMB

https://brokingrfs.cimb.com/41HQZqyVxg2 ... f3vLQ2.pdf

[winston]

Malaysia, China investors should explore opportunities in China’s medical gloves industry

China imported 71% or US$96mil worth of rubber medical gloves from Malaysia in 2015 and demand was expected to increase.

China’s per capita usage of medical gloves only stood at three pairs yearly while the world average consumption is 25 pairs per year.

“If China were to increase consumption to 8 or 10 pairs of gloves yearly, the potential for Malaysian rubber gloves to make further inroads into the country is enormous”

Exports to China grew at an average of 15.2% yearly and the country has emerged as the fourth largest export market for Malaysian rubber products in 2015 from 12th placing, 10 years ago.

Source: The Star

http://www.thestar.com.my/business/busi ... -industry/

[winston]

Malaysia: Glove industry expects RM14.3b exports this year

The rubber gloves industry is expected to record RM14.3bil in export revenue for 2016 with stronger growth seen in the second half due to rising health awareness and outbreak of diseases.

Source: StarBiz

[winston]

Demand for medical gloves has reached critical level - Margma

Source: The Star

The Malaysian Rubber Glove Manufacturers Association (Margma) said it was optimistic of the usual 8% to 10% annual growth for medical gloves and forecast a higher revenue due to higher selling prices.

Incessant heavy rains and flooding in some areas had badly affected natural rubber (NR) producers.

In September 2016, the NR latex average price was RM4.56 per wet kilo (kg) and today, it stood at RM7.15 per wet kg.

“This is indeed a serious and sharp rise of about 45% from September to January,” Foo said.

Foo said the association’s members had increased the selling prices of gloves by US$1 to US$1.50 from September to December 2016.

“From January 2017 onwards higher raw material prices need to be costed into the nitrile glove prices by about US$2.50 to US$3.50.

Source: The Star

http://www.thestar.com.my/business/busi ... ---margma/

[winston]

CIMB Research still bullish on rubber glove sector

It said on Wednesday the recent strengthening of US$/RM a boon to Malaysian glove players.

“Demand and supply dynamics have improved, further aided by the spacing out/ staggering of new capacity ramp-up over the year.

“Glove selling prices to trend higher given the easing of capacity. This will enable better past-through of costs, including rising raw material prices.

“Maintain sector Overweight, with Top Glove as our top pick. We also upgrade Kossan to Add, and Hartalega to Hold,” it said.

“Moving into 2017, we expect the combined capacity of glove players under our coverage to increase 11.1% to 129 billion pieces per annum,” it said.

Global demand growth of 7%-9% a year.

“Even though the recent increase in latex prices (+18.2% YTD) could spark some concern, we do not foresee any difficulties in the glove players passing on the additional costs,”

Source: The Star

http://www.thestar.com.my/business/busi ... ve-sector/

[winston]

Brace for higher rubber glove prices, says trade body

KUALA LUMPUR: Consumers will have to brace for higher prices of rubber gloves over the next few days due to the distruption in a base material for producing nitrile latex and also higher latex prices.

Malaysian Rubber Glove Manufacturers Association (Margma) president Denis Low Jau Foo estimated glove prices could increase by as much as 9% to 12 % this time around depending on the glove type.

One of the key contributing factors was Hurricane Irma which had hammered the coastal areas of the United States.

“The devastation has caused the prices of butadiene, an important material in the production of nitrile latex to soar as its production has been severely affected. The increase in butadiene prices is expected to contribute to an increase in nitrile latex prices,” he said.

Low also said natural rubber latex prices have also been affected by speculation as the commodity is highly volatile.

“The International Tripartite Rubber Council, which is made up of the world’s top producers of natural rubber will be having its annual meeting later this month,” he said.

Low explained that prices of rubber tend to increase due to anticipation of price fixing and speculation.

“As manufacturers, we want natural rubber prices to be stable, and for farmers to be adequately compensated for their work, and not be subjected to unreasonable speculation and profiteering,” he said.

He pointed out that nitrile latex and natural rubber latex were major cost components in manufacturing rubber gloves.

Margma is advising its members to revise their prices of gloves to better reflect the sharp rise in production cost.

It cautioned its members to limit the validity date to a shorter period so as not to get caught out in the unpredictability of rubber and butadiene prices.

Low said besides the rising cost of raw materials, another key factor affecting rubber glove prices was the weakening of the US dollar (from RM4.49 to RM4.21 to the US$).

He added the shortage of paper had pushed packing material prices up by 15%. The lack of readership of newspapers and magazine was causing the lack of feedstock to cupboard and cartons processing.

Low said demand for rubber gloves in Janauary to June of 2017 had been extremely encouraging as revenue increased by around 25% to RM8.1bil from RM6bil in the previous coresponding period. Volume rose 15.8% on the back of 8%-10% growth usually.

“We expect the second half of the year to be even better as Europe and America are buying very strongly with Asia leading the pack in terms of consumption.

We understand from our members that most of them are in an oversold capacity position with some major players in oversold up to December,” said Low.

Source: The Star

http://www.thestar.com.my/business/busi ... 0cMDcuq.99

[winston]

Glove makers downgraded to Neutral at Affin Hwang Research

KUALA LUMPUR: Affin Hwang Capital Research has downgraded the glove makers to Neutral with Top Glove as its sector top pick as the current sector forward price-to-earnings (P/E) valuation was no longer attractive.

The research house said on Thursday all glove companies within its coverage reported better 2Q17/1H17 results on-year while margins rebounded sequentially as industry demand-supply dynamics improved.

“Moving forward, we believe that automation and cost pass-through will be essential to protect margins while capacity expansion remains the key growth driver.

Affin Hwang Research said the sector valuation has risen by 12.5% year-to-date. The current sector forward P/E valuation of 19.2 times has priced in the better prospects ahead and is no longer attractive.

For the latest 2QCY17 quarterly results, all the glove companies within its coverage reported better results compared to the same quarter in the preceding year. But, most missed expectations due to various reasons.

The industry witnessed stiffer pricing competition in 2016 due to increased supply. However, after a relatively modest increase in industry capacity since 2H16 and robust global glove demand, the industry demand-supply dynamics has improved, as evidenced by rebounding industry profit margins.

The factors for firmer demands were due to more stringent healthcare regulations, increased healthcare spending, growing usage in emerging countries and widening application of gloves in other industries.

“Moving forward, we expect the glove manufacturers to contend with rising raw material, labour and utility costs.

“Meanwhile, a stronger Ringgit could reduce the effective sales proceeds received. However, we expect increased industry automation and the ability to pass through the costs to their customers to help mitigate these factors and protect profit margins,” it said.

“We believe the ability to execute the capacity expansion plans without sacrificing profit margins would be the key differentiating factor among the glove companies within our coverage.

“We remain lukewarm on certain companies’ diversification plans and do not expect these ventures to be a game-changer,” said Affin Hwang Research.

Source: The Star

Read more at http://www.thestar.com.my/business/busi ... 5ii5D5P.99

[winston]

Rubber glove exports to hit all-time high

by Daniel Khoo

Industry raises sales target to RM16.2bil on strong demand

PETALING JAYA: Shares in major rubber glove-producing companies jumped as the industry projected a sharp increase in export sales this year following supply cuts from rivals in China.

The Malaysian Rubber Glove Manufacturers Association (Margma), in a statement yesterday, said it had increased this year’s export sales target to RM16.2bil amid strong demand from overseas.

“As of the present situation, all glove manufacturers are oversold and selling beyond their capacity to produce by over three or four months behind due to demand and labour shortage issues,” Margma president Denis Low Jau Foo told StarBiz when contacted yesterday.

A report by Maybank Investment Bank Bhd last month said that there was a “mild supply shortage” of rubber gloves due to the robust demand and supply cut from China.

This favourable condition has enabled some producers to increase their average selling prices to mitigate the impact of higher production costs.

Despite the challenges, Low said rubber glove exports from Malaysia are expected to reach close to 150 billion pieces this year. It is estimated that exports from Malaysia accounted for two-thirds of global consumption.

“In terms of sales and volume, we are at an all-time high,” Low said.

Surging export sales are helping to whet investors’ appetite for rubber glove producers.

In the stock market yesterday, shares in Top Glove jumped 38 sen, or almost 5%, to close at RM5.93 – its highest level since January last year.

The company will release its full-year results next week.

Source: The Star

Read more at http://www.thestar.com.my/business/busi ... 9CX5O5m.99

[winston]

Higher than expected gas tariff hike but…

Gas Malaysia announced that it will increase the average effective gas tariff for nonpower
sectors to RM32.52/MMBtu for the period of 1 Jan to 30 June 2018.

Although the quantum of hike is higher than expected, we believe glove makers are likely able to manage the additional cost given the early notice.

Minimal impact on sector earnings. Maintain Overweight.

Maintain Overweight

Our Overweight sector recommendation stays. Although the quantum of gas price is higher than expected, we do not see glove makers facing much difficulty raising ASPs.

Kossan remains our top pick for the sector as it is a laggard play vs. its peers such as Top Glove and Hartalega. Moreover, we expect Kossan's earnings to improve from 4QFY17, on the back of substantial increase (13.6%) in its production capacity.

Downsides risks to our view are a sharp decline in US$/RM and stronger pricing competition.

Source: CIMB

https://brokingrfs.cimb.com/FLLmgTKahJo ... hHFBw2.pdf

[winston]

Glovemakers under pressure

By Izwan Idris

Gas constitutes about a tenth of glovemakers’ production cost.

A hike of 22.4% will impact glove players’ earnings by 7%-10% if it is absorbed fully,” Alliance Research said.

Source: The Star

https://www.thestar.com.my/business/bus ... -pressure/