KUALA LUMPUR (Aug 4): Top Glove Corp Bhd saw its shares rise as much as 30 sen sen or 3.9% to RM8 today, on increase in the profit margins for its latex gloves, according to TA Research.

In a note today, the research house said that sales of both latex and nitrile gloves are US dollar-denominated, and that between both products the proportion of cost denominated in ringgit is significantly higher for latex gloves.

“The supply of raw material for latex gloves (natural rubber latex) and nitrile gloves (nitrile latex) are denominated in ringgit and US dollar respectively. Hence, the rise in the US dollar augurs well for latex gloves as its margin will increase ... in recent times, latex gloves margins have increased from 15%–18% to 21%–22%,” said TA Research.

The research house added that utilisation rates for latex gloves have also been steadily rising over recent quarters, hovering between 75% and 80%, based on its third financial quarter ended May 31, 2015 (3QFY15) results.

“This could be attributed to a possible slowdown in latex glove supply, arising from the industry’s current focus on nitrile glove expansion.

“We view this as an advantage for the group, given its latex heavy capacity ... moreover, take note that growth is still apparent in the latex glove segment, particularly in emerging markets. All in all, we expect to see overall margin improvements for the group,” said TA Research.

As at 3.31pm today, Top Glove (fundamental: 2.5; valuation: 1.1) shares erased 0.13% of its earlier gains and was trading at RM7.97, with 1.4 million shares done, for a market capitalisation of RM4.9 billion.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)