Glove sector
Maintain “positive”. The Ebola virus disease which has killed over 3,300 people in West Africa since its outbreak in March has been reported in the United States. Recently, a man travelling from Liberia to Texas, in the US, showed symptoms of the virus after four days of arriving in the US.

Surprisingly, he was sent home but was admitted to hospital on Sept 28, 2014, after developing symptoms consistent with Ebola. This is the first case of Ebola diagnosed in the US and the first strain diagnosed outside of Africa.

Currently, the patient is kept isolated and anyone who has had recent contact with him is being closely watched.

According to historical epidemic episodes, the surge in demand for rubber gloves usually occurs before an epidemic. This is due to the belief that health providers will be stocking up on gloves as a preventive measure when dealing with the disease.

An example can be seen during the H1N1 or influenza A virus epidemic in the US in 2008. Revenues for Supermax Corp Bhd and Hartalega Holdings Bhd, which supply mostly nitrile gloves, increased by over 20% quarter-on-quarter in third quarter of 2008.

We note that North America is the main export market for the three major local rubber gloves manufacturers. Likewise, according to the Malaysian Rubber Export Promotion Council’s report on Malaysia’s rubber product exports for 2012, export to North America is the highest at 30% of total glove exports, followed by Europe and Asean with 24% and 10% respectively.

Although the US health officials have stated that Ebola will not become an epidemic in the US, there is still a slight possibility that it could spread as it has not been confirmed that anyone who had recent contact with the patient is Ebola-free.

In addition, our channel checks have indicated that there have been enquiries to our local glove manufacturers regarding their ability to produce gloves if there were to be a sudden surge in demand.

With the current expansions, it is undeniable that our local glove manufacturers will be able to accommodate the sudden increase in demand.

There is still headroom to expand production as Hartalega, Kossan Rubbers Industries Bhd and Top Glove Corp Bhd are currently operating at a utilisation rate of 88%, 85% and 75% respectively.

We believe that if Ebola becomes an epidemic in the US and elsewhere, our local glove manufacturers will see an increase in demand. In addition, with the current utilisation rate, our glove manufacturers will be able to meet the sudden surge in glove demand.

Our top “buy” recommendations for the sector are Top Glove with a target price (TP) of RM5.70 and Kossan with a TP of RM5.23. — MIDF Research Oct 3

This article first appeared in The Edge Financial Daily, on October 7, 2014.