Rubber glove makers to chart strong earnings on higher demand

The recent rally in the rubber glove counters has been spurred by the Covid-19 outbreak in China, higher demand for rubber products and resolved labour issues

Local rubber glove makers are estimated to chart strong improvement in their financial performance for financial year 2019 (FY19) and FY20, underpinned by higher demand for rubber products and resolved labour issues.

An analyst said companies, which were temporarily hit by the labour shortage, had resolved the issues late last year which enabled their factories to be fully operational at the highest capacity.

“There had not been many shake-ups in the last quarter of last year (4Q19). We saw some labour problems in the 3Q19, particularly for Kossan Rubber Industries Bhd, but it had been resolved and enabled its manufacturing plant to be fully operational in 1Q20,” the analyst said.

The analyst added that demand for nitrile and latex gloves, which are widely used in the health industry, has been extended to early this year and is expected to translate into the companies’ earnings profits in the 1Q20.

The coronavirus outbreak in China has increased the demand for rubber gloves on the back of increased awareness across the region to prevent cross-contamination between virus carriers and caregivers.

“The glove producers have said the extra orders from China are still in the enquiry stage and still have not been placed as orders. We believe Malaysian glove producers have been the global preferred suppliers because they have the capacity to meet the increased supply-demand.

“Going forward, they should be able to perform better,” the analyst said.

The analyst added that local glove producers could see improved margins early this year, driven by increased production.

“I think they could sustain the margin, in fact, they might see an expansion going forward.

“When they ramp up their utilisation rate and capacity, technically the cost will be lowered. We would think it is possible to expand margin,” the analyst with a local brokerage said.

The recent rally in the rubber glove counters has been spurred by the Covid-19 outbreak in China, but the climb has diminished due to the waning global sentiment.

Since January, the largest four rubber producers on the local bourse had gained almost RM6 billion in market capitalisation before the rally slowed in early February.

Top Glove Bhd’s share price closed 17 sen or 2.9% lower yesterday at RM5.68, bringing its market capitalisation to RM14.55 billion.

Hartalega Holdings Bhd’s share price surged 12.6% since January, adding RM2.13 billion to its market capitalisation. The counter closed seven sen lower at RM6.10 yesterday.

Kossan’s share price fell seven sen or 1.43% to RM4.81, valuing the company at RM6.15 billion, while Supermax Corp Bhd’s ended six sen or 3.53% lower at RM1.64 for a market capitalisation of RM2.23 billion.

Source: The Malaysian Reserve 

Posted on : 18 February 2020
Last Updated : Thursday 21st May 2020