KUALA LUMPUR (Jan 26): Rubber gloves counters were mixed in morning trades despite CIMB Research upgrading the sector to "Overweight" in a report today.
In the sector report, CIMB Research analyst Eing Kar Mei noted that 2014 was a not a particularly auspicious year for the sector as higher capacity resulted in pricing pressures and weaker earnings.
However, she said the strengthening US dollar and falling crude oil prices might partially cushion part of the pricing pressure amid intense competition among manufacturers.
"In line with the brighter outlook, we upgraded the sector's rating to an 'Overweight' from 'Neutral', with Kossan Rubber Industries Bhd remaining as our top pick," she said.
CIMB has revised its earnings forecasts for four rubber glove companies namely Top Glove Corporation Bhd, Hartalega Holdings Bhd, Supermax Corporation Bhd and Kossan for the financial years 2015 (FY15) to 2017 (FY17) by 1% to 4%. The upgrade is to factor in the stronger US dollar and potentially lower raw material prices.
According to the note, natural rubber gloves would face lesser margin pressure than nitrile gloves, as the more intense competition was mainly confined within the nitrile segment.
"Due to the same reason, the natural rubber segment will also benefit more from a stronger US dollar against the ringgit. This will benefit Top Glove (fundamental: 2.5; valuation: 0.9) the most, given its large natural rubber glove sales," Eing added.
In light with this, she upgraded her calls on Hartalega (fundamental: 3; valuation 0.3) to "Add" from "Hold", saying the counter is now pegged to a 2-year historical price to earnings ratio (P/E) of 21 times calendar year 2016 (CY16) P/E versus a 10% premium over her target market P/E previously.
She also upgraded Top Glove to "Add" from "Hold", with the P/E of 16.8 times of CY16.
"At the moment, we retained Supermax (fundamental: 1; valuation: 0.6) at 'Hold'. It is now pegged to 12.6 times CY16 P/E," she added.
She also maintained Kossan at "Add", with the counter pegged to a 18.9 times CY16 P/E.
As at 11.14am, two out of the five rubber gloves players in the country were trading on an uptrend with Kossan Rubber leading with a gain of as much as 11 sen or 2.1% before settling at RM5.35.
Some 144,200 shares were traded between RM5.17 and RM5.35. It has a market capitalisation of RM3.35 billion.
Top Glove was up 1 sen or 0.2% to trade at RM4.96 with 181,100 shares done, giving it a market capitalisation of RM3.06 billion.
Similarly, Supermax's shares rose 1 sen or 0.44% at RM2.26 with 1.26 million units traded, giving it a market capitalisation of RM1.52 billion.
However, Hartalega fell 3 sen or 0.41% to a low of RM7.27 in morning trades after touching a high of RM7.32 earlier.
Some 37,600 shares were traded between RM7.27 and RM7.32, giving it a market capitalisation of RM5.81 billion.
Integrated Rubber was not traded today. It last closed at 72 sen.