KUALA LUMPUR (Jan 26): CIMB Research has upgraded the rubber gloves sector to Overweight (from Neutral) and said 2014 was a not a particularly auspicious year for the sector as higher capacity resulted in pricing pressures and weaker earnings.

In a note Jan 23, the research house said while competition may be even more intense in 2015, its impact on margins will likely be cushioned by the strengthening USD and falling crude oil prices.

“In line with the brighter outlook, we upgrade our sector rating from a Neutral to an Overweight, with Kossan Rubber Industries Bhd as our top pick,” it said.

The research house said it was increasing its earnings forecasts to factor in the stronger USD versus the ringgit and potentially lower raw material prices.

“We upgrade our calls on Hartalega Holdings Bhd (now pegged to 2-year historical P/E of 21x CY16 P/E versus a 10% premium over our target market P/E prev.), and Top Glove Corporation Bhd (from 14.6x to 16.8x CY16 P/E, a 20% discount to Hartalega) from Hold to Add, and keep Supermax Corporation Bhd (from 12.4x to 12.6x CY16 P/E, a 40% discount to Hartalega) at Hold and Kossan (from 16.4x to 18.9x CY16 P/E, a 10% disc. to Hartalega) at Add.

“Kossan remains as our top pick,” it said.