Rubber Products (Gloves, Condoms etc)

[winston]

Top Glove expects dent to bottom line from gas tariff hike

by Intan Farhana Zainul

Managing director Datuk Lee Kim Meow(pic) targeted the company’s profitability would be impacted between 1% and 2% following the price adjustment.

PETALING JAYA: Top Glove Corp Bhd, the world largest glovemaker, expects the surprise natural gas tariff hike earlier this month to put a dent on its bottom line.

This is because of the lag time needed by the company to pass down the higher cost of production to its customers.

Managing director Datuk Lee Kim Meow targeted the company’s profitability would be impacted between 1% and 2% following the price adjustment.

“As such we and the Malaysian Rubber Glove Manufacturers Association (MARGMA) had made an appeal to Gas Malaysia Bhd to let us know in advance on the changes of gas prices.

“This is because the industry needs time to adjust to it, where we need to talk to our customers in the prices changes,” he said.

Shares of the company, as well as other glovemakers, took a big hit since the tariff hike was announced.

On July 12, Gas Malaysia Bhd announced the increase in natural gas price to RM32.74 per million British thermal units (MMBtu) for the period of July 15 to Dec 31, 2019, from RM32.69 per MMBtu.

This translated to an increase of 5.3% from the previous average tariff.

Following the announcement, Margma president Denis Low Jau Foo has lambasted Gas Malaysia for making a sudden announcement on changes in the gas price hike, with only a three-day notice.

“ As mentioned repeatedly in the past, in rubber glove export business, orders are taken two to three months ahead based on prevailing production costs by the foreign buyers,” he said in a statement.

He pointed out that Malaysian manufacturers must absorb the cost increase in order to honour the estimated RM5bil of orders taken before the announcement.

As a result, in total, Malaysia would stand to lose an estimated RM47.2mil foreign revenue resulting from the sudden gas tariff increase over the next three months.

He added that the tariff increase is higher than the base tariff at RM32.74 per MMBtu as announced in the road map on Dec 28, 2016.

Meanwhile, Top Gloves Lim said that the changes in the gas price are estimated to an increase in the glove production cost of between US$0.40 and US$0.80 per 1,000 pieces of gloves.

“Any changes in input prices we need to talk to our customers.

“And likewise, in the future, if there is a drop in raw material prices we will pass the cost savings or benefits to our customers.

“This is the only way we could have a long-term relationship with our customers, to show to them that we are a fair manufacturer,” he said. Nevertheless, Lee said Malaysia’s glove manufacturers will continue to do well

“Made in Malaysia carries a strong value,” he said adding that the Malaysia’s glove manufacturers supply 60%-70% of the world’s gloves consumption.

Many glove manufacturer counters on Bursa Malaysia fell in anticipation of the hike in gas price.

Since the start of July, shares in Top Glove declined 4.9% to RM4.68 at last Friday closing while Hartalega Holdings Bhd fell 1.7% to RM5.17 and Supermax Corp Bhd dipped 3.5% to RM1.64.

Kossan Rubber Industries Bhd saw a 2.5% increase to RM4.08 a share.

MIDF Research said that glove makers will likely be able to pass on the higher costs to clients in September in line with the cost pass-through mechanism

It expected the gas price hike to affect 5% of glovemakers’ earnings in the third quarter of this year.

Source: The Star

https://www.thestar.com.my/business/bus ... SfW5AZh.99

[winston]

Top Glove expects dent to bottom line from gas tariff hike

by Intan Farhana Zainul

Managing director Datuk Lee Kim Meow(pic) targeted the company’s profitability would be impacted between 1% and 2% following the price adjustment.

PETALING JAYA: Top Glove Corp Bhd, the world largest glovemaker, expects the surprise natural gas tariff hike earlier this month to put a dent on its bottom line.

This is because of the lag time needed by the company to pass down the higher cost of production to its customers.

Managing director Datuk Lee Kim Meow targeted the company’s profitability would be impacted between 1% and 2% following the price adjustment.

“As such we and the Malaysian Rubber Glove Manufacturers Association (MARGMA) had made an appeal to Gas Malaysia Bhd to let us know in advance on the changes of gas prices.

“This is because the industry needs time to adjust to it, where we need to talk to our customers in the prices changes,” he said.

Shares of the company, as well as other glovemakers, took a big hit since the tariff hike was announced.

On July 12, Gas Malaysia Bhd announced the increase in natural gas price to RM32.74 per million British thermal units (MMBtu) for the period of July 15 to Dec 31, 2019, from RM32.69 per MMBtu.

This translated to an increase of 5.3% from the previous average tariff.

Following the announcement, Margma president Denis Low Jau Foo has lambasted Gas Malaysia for making a sudden announcement on changes in the gas price hike, with only a three-day notice.

“ As mentioned repeatedly in the past, in rubber glove export business, orders are taken two to three months ahead based on prevailing production costs by the foreign buyers,” he said in a statement.

He pointed out that Malaysian manufacturers must absorb the cost increase in order to honour the estimated RM5bil of orders taken before the announcement.

As a result, in total, Malaysia would stand to lose an estimated RM47.2mil foreign revenue resulting from the sudden gas tariff increase over the next three months.

He added that the tariff increase is higher than the base tariff at RM32.74 per MMBtu as announced in the road map on Dec 28, 2016.

Meanwhile, Top Gloves Lim said that the changes in the gas price are estimated to an increase in the glove production cost of between US$0.40 and US$0.80 per 1,000 pieces of gloves.

“Any changes in input prices we need to talk to our customers.

“And likewise, in the future, if there is a drop in raw material prices we will pass the cost savings or benefits to our customers.

“This is the only way we could have a long-term relationship with our customers, to show to them that we are a fair manufacturer,” he said. Nevertheless, Lee said Malaysia’s glove manufacturers will continue to do well

“Made in Malaysia carries a strong value,” he said adding that the Malaysia’s glove manufacturers supply 60%-70% of the world’s gloves consumption.

Many glove manufacturer counters on Bursa Malaysia fell in anticipation of the hike in gas price.

Since the start of July, shares in Top Glove declined 4.9% to RM4.68 at last Friday closing while Hartalega Holdings Bhd fell 1.7% to RM5.17 and Supermax Corp Bhd dipped 3.5% to RM1.64.

Kossan Rubber Industries Bhd saw a 2.5% increase to RM4.08 a share.

MIDF Research said that glove makers will likely be able to pass on the higher costs to clients in September in line with the cost pass-through mechanism

It expected the gas price hike to affect 5% of glovemakers’ earnings in the third quarter of this year.

Source: The Star

https://www.thestar.com.my/business/bus ... SfW5AZh.99

[winston]

Thematic: Gloves manufacturers
Beneficiary of trade diversion and weak ringgit

Trading Catalysts

After a weak 6MFY19 results in wake of rising raw material costs (e.g. latex/butadiene), aggressive pricing competition and unfavourable USD/MYR, cloudy skies are expected to clear in 2H, with easing pricing competition and improved supply-demand dynamics due to managed and staggered capacity expansion.

Moreover, trade diversions from China to Malaysia amid heightened US-China tensions and weakening ringgit (starting from May) coupled with defensive long-term prospects and inelastic demand for rubber gloves would continue to support sector’s appeal.

TOPGLOV (BUY-RM5.30 TP) remains HLIB sector top pick whilst technically attractive plays are COMFORT and SUPERMX.

Technical view
COMFORT - Support: 0.755-0.78; Resistance: 0.815-0.845; LT target: 0.905; Cut loss: 0.75
SUPERMX - Support: 1.50-1.54; Resistance: 1.72-1.80; LT target: 1.90; Cut loss: 1.46
TOPGLOV - Support: 4.60-4.66; Resistance: 4.82-4.93; LT target: 5.21; Cut loss: 4.55

Source: Bloomberg, HLIB

[winston]

Thematic: Gloves manufacturers
Beneficiary of trade diversion and weak ringgit

Trading Catalysts

After a weak 6MFY19 results in wake of rising raw material costs (e.g. latex/butadiene), aggressive pricing competition and unfavourable USD/MYR, cloudy skies are expected to clear in 2H, with easing pricing competition and improved supply-demand dynamics due to managed and staggered capacity expansion.

Moreover, trade diversions from China to Malaysia amid heightened US-China tensions and weakening ringgit (starting from May) coupled with defensive long-term prospects and inelastic demand for rubber gloves would continue to support sector’s appeal.

TOPGLOV (BUY-RM5.30 TP) remains HLIB sector top pick whilst technically attractive plays are COMFORT and SUPERMX.

Technical view
COMFORT - Support: 0.755-0.78; Resistance: 0.815-0.845; LT target: 0.905; Cut loss: 0.75
SUPERMX - Support: 1.50-1.54; Resistance: 1.72-1.80; LT target: 1.90; Cut loss: 1.46
TOPGLOV - Support: 4.60-4.66; Resistance: 4.82-4.93; LT target: 5.21; Cut loss: 4.55

Source: Bloomberg, HLIB

[winston]

MY: Malaysia Gloves Sector

Better grip in 2H19

Sector Note

Demand for Malaysia’s rubber non-medical gloves has been robust due to a structural decline in China’s plastic gloves.

Meanwhile, demand for Malaysia’s medical gloves has also improved as demand picks up.

Top pick is Kossan for:
i) its leadership in the non-medical segment;
(ii) superior 2018-20E net profit CAGR of 17%;
iii) CY20E P/E of 20x.

Our TP for Kossan is also raised to MYR5.10 (+9%) on a higher target CY20E P/E of 24x to reflect the structural demand shift to rubber non-medical gloves.

Source: Maybank

https://factsetpdf.maybank-ke.com/PDF/1 ... 63c9e5.pdf

[winston]

Silver lining in the cloud

The US Customs and Border Protection (CBP) recently issued detention orders on goods made by WRP Asia Pacific, a Malaysian glove maker.

This is due to CBP’s suspicions that WRP products are made by forced labor.

While this news may lead to negative perceptions on the rubber glove sector, we expect order diversions to benefit gloves makers under our coverage.

Source: CIMB

https://cgs-cimb-insticrm-services.hero ... 818AB76F04

[winston]

not vested

Affin Hwang upgrades gloves sector to ‘Outperform’ on better 2020 outlook

by Syahirah Syed Jaafar

KUALA LUMPUR (Dec 6): Affin Hwang Capital has upgraded the gloves sector to ‘Outperform’ on optimism its prospects for 2020 will improve as demand from the US is expected to improve, while labour issues and higher production costs that emerged in the third quarter of 2019 (3Q19) are gradually resolved.

The research house has named Top Glove Corp Bhd (target price up 90 sen to RM5.20) and Kossan Rubber Industries Bhd (target price down 40 sen to RM6) as its top Buy picks for the sector.

In the 3Q19 earnings reporting season, the research house noted there were no winners amongst glove makers, where sector earnings fell below expectations, owing to the issues outlined above.

“We had underestimated the impact of the report relating to forced labour issues in the rubber glove sector, which we believe caused a 15%-25% shortage in manpower, post the hard cap on the allowable overtime for employees.

The government’s decision to freeze the recruitment of Bangladeshi workers due to concern over bonds related to debt, had worsened the problem. Some companies have started recruiting from other countries or received approval to recruit directly to address the problem.

We are also expecting the government to re-open the recruitment soon, after rooting out the problematic recruitment agencies,” Affin Hwang Capital analyst Ng Chi Hoong said.

The industry was also negatively impacted by the 5.3% hike in natural gas tariff in July, which is believed to have reduced gross profit margins by 0.5%-0.8% in 3Q19.

“Given that the impact of the gas price hike was across the board, we believe that the manufacturers have already started passing on the higher cost to customers. Hence, we are expecting margins to recover in 4Q19.

“As both were industry-wide issues, almost all the glove makers recorded declines in profit year-on-year for the 9M19. Due to the weak performance, we had cut our earnings forecasts for 2019-2022 by 5%-6%,” Ng said.

With problems faced in the third quarter gradually being resolved, coupled with higher demand from the US, Affin Hwang said it believes the sector is poised for a better 2020.

“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.

In our view, the larger cap names are likely to move ahead of the smaller cap names, despite having slower earnings growth,” Ng said.

Source: The Edge

https://www.theedgemarkets.com/article/ ... 20-outlook

[winston]

not vested

Profit margins of glove companies to come under pressure — AmInvestment

by Nazuin Zulaikha Kamarulzaman

KUALA LUMPUR (Dec 11): AmInvestment Bank Bhd has maintained its "Neutral" rating on the glove sector, and said it believes that selling prices and operating profit margins of glove companies will come under pressure due to a short-term oversupply in the industry.

In a note today, AmInvestment said the pressure on selling price will continue in 2020 as the "Big 3" producers, namely Top Glove Corp Bhd, Kossan Rubber Industries Bhd and Hartalega Holdings Bhd, are still in expansion mode.

It said operating margins pressure may remain in 2020 as it believes the "Big 3" producers will continue to be hit by intense competition, higher labour costs, mixed raw material prices and higher gas tariff.

The research house expects sales volume to continue to grow around 8% to 10% in 2020, underpinned by an expanding global healthcare sector as well as increased awareness on the importance of hygienic practices throughout the industry, especially in India and China.

It also noted that there is an influx of latex glove supply from Thailand's Sri Trang, as the group plans to increase its capacity to 30 billion pieces by end-2020 from 22 billion pieces in 9M19.

"2020 will see an enlarged supply of gloves by circa 17.6%, although the expansion is at a gradual pace.

"As this exceeds the organic demand growth expectation of 8-10%, we believe the average selling price (ASP) will continue to be weighed down," AmInvestment said.

Malaysia's exports of rubber gloves in 2018 grew 14% y-o-y (+7.6% natural rubber gloves; +18.2% nitrile gloves) while 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.

According to the research house, currently the glove consumption per capita in emerging markets such as India and China is still low at around two to six gloves as opposed to circa 100-280 gloves for developed countries.

"We may upgrade our Neutral call for the sector to Overweight should there be any pandemic disease outbreaks which cause an upsurge in glove demand and supply constraints for substitute latex and nitrile gloves, resulting in a switch to latex and nitrile gloves," it said.

Conversely, it may downgrade to Underweight in the event of a sustained supply glut, triggering a price war that crimps margins and the inability of glove makers to pass on the rising costs.

AmInvestment's top pick for the glove sector is Kossan (Buy, fair value: RM4.65). The research house noted it favours Kossan for its expansionary plans and efforts in improving operational efficiency.

Source: The Edge

https://www.theedgemarkets.com/article/ ... investment

[winston]

Prices for medical rubber gloves set to go up

PETALING JAYA: The price of medical rubber gloves is set to increase when the higher minimum wage comes into effect next month.

Malaysian Rubber Glove Manufacturers Association president Denis Low said while the latest increase in wages for urban workers was inevitable, due the rising cost of living, the move will have a ripple effect.

He said the increased wages will affect everything... from support services and packaging materials to raw ingredients.

“We will have to adjust and factor in this additional cost to our products.” Low said in a statement.

The cost increase, he said, could hover around US$0.45 to US$0.75 for every 1,000 pieces, depending on the glove type and production efficiency.

The Human Resources Ministry recently released the list of cities and towns involved in a mandated wage hike following the government’s announcement in Budget 2020 that minimum salaries in urban centres will be raised to RM1,200 per month from RM1,100 currently, starting Jan 1,2020.

The move is meant to help workers cope with elevated living costs and is in line with the government’s aim to achieve a minimum wage of RM1,500 a month within the first five years of the Pakatan Harapan administration.

The country had last raised minimum wage to the current rate nationwide at the beginning of this year from RM1,000 in Peninsular Malaysia and RM920 in Sabah, Sarawak and Labuan previously.

Low said the association understood the need for higher wages to alleviate the burden of rising living costs, but noted that the cost of doing business was also rising quickly.

“We would like to urge the government to refrain from increasing the cost of water, electricity and other amenities to keep Malaysian manufacturers competitive.” he said in the statement.

He added that there was a “severe shortage” of workers and that this had impacted productivity.

An analyst, who declined to be named, said it was expected and the norm for glovemakers to pass on rising costs to their customers.

He noted that glovemakers usually also pass on cost-savings when their costs decrease.

“Rubber glovemakers wouldn’t need to worry about their earnings being impacted as the higher costs are passed on to their customers, ” he said.

Source: The Star

https://www.thestar.com.my/business/bus ... t-to-go-up

[winston]

Rubber gloves could experience growing demand in 2020

Tthe 3Q results season came within expectations with volume growth of 6% and 14% recorded by Top Glove and Hartalaga respectively.

It said its ground checks showed demand for nitrile gloves is picking up again and players' new capacities are being swiftly taken up.

Based on its analysis, nitrile gloves market share could experience 30% growth in 2020.

In the latex segment however, the strong competition could negatively impact margins.
TOPGLOV and SUPERMX could continue to be plagued with competitive pressure from low margin latex gloves (accounts for an estimated 50% of product mix for both players) which could offset the gains in the nitrile segment".

Kenanga advised investors to focus on nitrile-centric players such as Hartalega and Kossan, whose product mixes comprise 95% and 75% nitrile respectively. Its top pick is Hartalega with a target price of RM6.

Source: The Star

https://www.thestar.com.my/business/bus ... nd-in-2020