KUALA LUMPUR (Sept 12): Hong Leong Investment Bank (HLIB) expects cloudy skies for glove manufacturers to clear in the second half of 2019 (2H2019), with easing pricing competition and improved supply-demand dynamics due to managed and staggered capacity expansion.
Moreover, in a technical tracker today, the research house said trade diversions from China to Malaysia amid heightened US-China tensions and weakening ringgit (starting from May) coupled with defensive long-term prospects and inelastic demand for rubber gloves would continue to support the sector's appeal.
HLIB said Top Glove Corp Bhd remains its top pick while technically attractive plays are Comfort Gloves Bhd and Supermax Corp Bhd.
Commenting on Top Glove, HLIB said following the flag formation, share prices have been trending higher in the last two weeks.
It said indicators are still showing positive momentum to drive prices higher to RM4.82 (higher Bollinger Band) and RM4.93 (SMA200) territory.
"A strong breakout above RM4.93 will spur prices to our long-term (LT) objective at RM5.21 (Feb 20 high). Supports are situated at RM4.66 (SMA50), followed by RM4.60 (SMA30). Cut loss at RM4.55," it said.
On Comfort Gloves, the research house said that following the LT downtrend line breakout, the stock has been trending sideways between the 75.5 sen (52-week low on Aug 5) and 81.5 sen (SMA100) levels over the past two months.
"The MACD (moving average convergence divergence) indicator is flat whilst the RSI (relative strength index) and stochastic indicators are still hovering in oversold levels. Hence, we are monitoring for a big trend in the near term.
"Should the price break out above 81.5 sen, next target will be set around 84.5 sen (SMA200) before reaching our LT objective at 90.5 sen (61.8% FR [forward resistance]). Support will be located around 78 sen (Aug 16 low), followed by 75.5 sen. Cut loss at 75 sen," it said.
Meanwhile, on Supermax, HLIB said the group's share price was able to form a base above the support trendline after hitting year-to-date low of RM1.40 on March 26.
It said trend and momentum indicators are flashing positive signals.
"Hence, we believe that Supermax is poised for an impending SMA200 breakout near RM1.61.
"Next target will be located at RM1.72 (50% FR) and RM1.80 (61.8% FR) before reaching our LT objective at RM1.90 (76.4% FR). Support will be located around RM1.54 (SMA30), followed [by] RM1.50. Cut loss at RM1.46," it said.