Rubber Glove
Latex Price Stabilised
The Research Team
research@bimbsec.com.my
03-26918887 ext 111
Unlike the wild gyrations in 2011, latex price for 2012 has stabilised and trading
between RM7.40 and RM7.90, averaging at about RM7.80/kg. This is due to
intervention by the Thai government supporting the latex price to stay above
RM7/kg on 24 January 2012. In the recent quarterly earnings season, most of the
companies under our coverage have shown signs of improvement, especially Top
Glove the largest natural latex glove maker, posting a 70% jump in QoQ earnings.
We believe the worst is over for our glove makers amid a more stabilised latex price
and improved demand. Earnings for the coming quarters shall remain firm hence
our earnings forecast for all the companies under our coverage remain unchanged.
We maintain OVERWEIGHT on the sector and maintain BUY recommendations on
Kossan (TP: RM4.35), Supermax (TP: RM2.38) and Top Glove (TP: RM5.66) while
Hartalega (TP: RM8.04) remains a NEUTRAL.
Less fluctuation in latex price. To recap, the Thai government had on 24th Jan 2012
stepped into its rubber industry to support the rubber price, enabling latex prices to
stay above RM7.00/kg in the short term. Ever since the move, latex price has traded
within the range of between RM7.40/kg and RM7.90/kg; and averaged around
RM7.80/kg YTD. Over the past 1 month, the difference between the high and low of
the latex price did not go beyond 2%. Meanwhile, most glove manufacturers believe
that latex price will trend around current range over the short to medium term.
QoQ earnings improvement. In the recent quarterly earnings season, most of the
companies under our coverage have shown signs of improvement, especially Top
Glove the largest natural latex glove maker, registered a 70% jump in QoQ earnings.
We believe the biggest contributor to the improved earnings would be the improved
demand due lower selling price. Meanwhile, bulk purchasers are increasing their
stock holding back to normal levels. Recall that when latex price was at its all time
high at RM10.92/kg in April 2011, bulk buyers around the world have been keeping
their inventory low, at 2 months compared to their usual inventory level of about 4
months. This level has been maintained despite latex price had dropped below
RM7/kg as they anticipate further decline in latex price. Now that a price floor has
somewhat been determined (with the Thai government intervention); expectations of
further drop in latex price should diminished and we expect buyers to increase their
inventory level back to their normal level. With this, the demand of rubber gloves
shall return to normal. We have spoken to the management of glove players and they
have confirmed that sales volume has been increasing as buyers are increasing their
inventory level.
Maintain OVERWEIGHT. We are maintaining our FY12 and FY13 earnings as we do
not foresee any surprises in the coming quarters following the stabilisation of latex
price. We maintain OVERWEIGHT on the sector and BUY recommendations on
Kossan (TP: RM4.35), Supermax (TP: RM2.38) and Top Glove (TP: RM5.66) while
Hartalega (TP: RM8.04) is a NEUTRAL. Nonetheless, we still like Hartalega and we
recommend investors to accumulate the stock at lower level.