If this is true, glove stock will up.
Let's look at the glove stock in KLSE.
Analyst by OSK:
Supermx:
Following Supermax’s analyst briefing yesterday, we are reiterating our BUY call and leaving our FV unchanged at RM2.70, based on a 13x FY13 PER. Management expects latex price to fall further to RM4.50/kg due to additional supply from maturing plantations in the neighboring countries of Cambodia and South Vietnam. Nonetheless, in view of the resilient demand, declining raw material
costs and better operating efficiency, the group’s 2HFY12 margins and performance should improve. Management has lifted its dividend payout to 30% of PAT vs 20% previously. That said, we are maintaining our DPS forecast of 8.5 sen per share, translating into a dividend yield of 4%. Maintain BUY.
Ramping up nitrile glove (NBR) mix to 52% by 2013. As NBR prices are more stable compared with Natural Rubber (NR) latex prices, coupled with resilient demand for NBR gloves from the developed countries, management is fast-tracking the construction of three factories – on Lots 6058, 6059 and 6070 - to produce NBR gloves. We gather that this is a significant shift in product mix, as Supermax is increasing the portion of NBR from 35% currently to 52%. The three factories will produce a combined estimate of 5.2bn pieces of NBR gloves and contribute earnings of some USD151m by 4QFY12 and FY13, which we have incorporated into our earnings projections. However, as the resilient demand for NBR gloves has led to major glove manufacturers in Malaysia, China, Thailand and Indonesia expanding their respective capacity for this type of gloves, intense price competition is likely to emerge and thus erode profit margins.
Nonetheless, in view of the better operating efficiency – thanks to automation of the company’s factories as well as low latex prices – we are positive that the group’s margins will stay at a healthy 10%-15% going forward.
Focus on global marketing & distribution, rather than upstream expansion. While its peers Top Glove (BUY, FV RM6.00) and Kossan (BUY, FV RM4.00) have chosen to expand upstream, Supermax has guided that the company would not be taking the same option, at least for the next 1-2 years. Instead, management will continue to focus on manufacturing, distributing and marketing its gloves to Germany, US, Canada, Brazil and UK. Management also guided that it is on track to spend capex of RM187m, of
which RM52m will be utilized in FY12, RM96m in FY13 and RM39m in 1HFY14. Maintain BUY. In line with our earnings projections, Supermax aims to achieve 20% earnings growth in FY12. We believe this is achievable owing to:
(i) a higher production capacity via the expansion of surgical glove production to 336m pairs vs 30m pairs by 4QFY12 from new lines at its factory on Lot 42,
(ii) lower material cost prices, and
(iii) higher operating efficiency once its factories are fully automated.
Management has raised its dividend payout to 30% of PAT from 20% previously. We reiterate our BUY call on Supermax with our FV unchanged at RM2.70, pegged to a 13x FY13 PER.
Kossan by OSK
Kossan’s 1HFY12 earnings of RM46m were within our expectations but slightly below consensus, representing 47% and 43% of the respective FY12 forecasts. Revenue and earnings went up by 12% and 4% y-o-y respectively, mainly due to higher sales volume, expanding margins as the cost of raw materials such as latex prices declined, and a favourable USD/MYR exchange rate. As the results were largely in line, we are maintaining our BUY call but lift our FV to RM4.53 from RM4.00 previously as we roll over our valuations to FY13, pegged at a 13x PER.
Kossan’s plant expansion appears to be on track. The company may be able to commercialise nitrile production by Sept 2012, which will boost its annual capacity by 13.5%. We note that Kossan’s current valuation is at an undemanding 10x on our FY13 earnings forecast. Maintain BUY.
Numbers in line. Kossan’s 1HFY12 results were within our but below consensus expectations, making up 47% and 43% of the respective FY12 forecasts. YTD, its topand bottom-lines expanded by 12% and 4% to RM594m and RM46m respectively owing to higher sales of 2.6bn pieces in 2QFY12, up 27% y-o-y and 5% q-o-q. In addition, the decline in cost of raw material such as latex, as well as better operating efficiency at its factories due to automation further boosted earnings. Q-o-q, the group’s revenue, PBT and earnings rose 5%, 9% and 8% to RM305m, RM31m and RM24m respectively, boosted mainly by its core technical rubber products division, whose revenue and profits
surged 14% and 29% q-o-q respectively due to lower latex cost and better production efficiency. While Kossan’s clean-room division registered a 14% revenue growth over the quarter, it continued to incur losses due to the development costs of clean-room gloves.
Nonetheless, we expect the division to perform better and earnings to kick in by 3QFY12 via expansion in its mask and wipes products and marketing efforts.Smooth progress in capacity expansion brightens outlook. We gather that Kossan’s plant expansion is on track and will see the company commercialise nine of its nitrile production lines by 3QFY12. This will boost its total annual capacity to 12.5b pieces (+13.5% to its current 11bn pieces). The group also expects its nine surgical glove lines to commence production in 4QFY12. While the surgical glove segment currently accounts for only about 4% of the group’s total sales, management has indicated that it will pay more attention to this segment going forward as there is better pricing power as well as wider margins for such value-added products.
KUALA LUMPUR (Sept 26) - - The World Health Organisation (WHO) has issued a global warning on the potential spread of a virus linked to a form of acute respiratory syndrome which has infected two Middle Eastern nationals. One case was fatal.
In a statement posted on its official website, WHO said the agency is investigating the dynamics of the novel coronavirus and has immediately alerted its 194 member countries -- which include Malaysia.
“Following the confirmation of the novel coronavirus, WHO - under the International Health Regulations - immediately alerted all its member states about the virus and has been leading the coordination and providing guidance to health authorities and technical health agencies.
“WHO is also identifying a network of laboratories that can provide expertise on coronaviruses for countries,” said the agency which operates under the United Nations banner.
Malaysia’s Health Ministry is watching the situation closely and is cooperating with WHO on the matter, according to news reports.
The WHO’s warning came after the UK authorities informed the agency of an acute respiratory syndrome case involving a 49 year-old male Qatari national last Saturday (Sept 22).