KUALA LUMPUR (May 9): Hartalega Holdings Bhd and Top Glove Corp Bhd rose by as much as 33 sen (6.42%) and 16 sen (3.27%) respectively in afternoon trading today, in line with the gains seen by another glove counter, Kossan Rubber Industries Bhd, which was upgraded to "buy" by UOB Kay Hian Securities (M) Sdn Bhd.
Following the upgrade, Kossan rose by as much as 25 sen or 4.17%, with 372,300 shares traded, equivalent to 0.06% of its share capital.
According to UOB Kay Hian, the glove industries have benefited from the depreciation of the ringgit and industry-wide recovery in glove's average selling price, which "should result in further sequential margin expansion".
As for Kossan, UOB Kay Hian said it has upgraded its "hold" call on the stock to "buy" because its values "have re-emerged" following an 8% decrease in its share price year-to-date. The research firm is keeping Kossan's target price at RM6.72, with an 11.9% upside.
UOB Kay Hian also expects Kossan to chalk a mid to high single-digit earnings growth on a quarter-on-quarter (q-o-q) basis for the first quarter ended March 31, 2017 (1Q17).
This, UOB Kay Hian said, was on the back of higher glove sales volume contribution from a recovery in utilisation rates to more than 80% in 1Q17, from 75% to 76% in 3Q16, at two older plants following the completion of major refurbishment works last quarter.
"Despite the absence of new production capacity coming on-stream in 1Q17, we expect Kossan to deliver 4% to 5% q-o-q sales volume growth, thanks to the full restoration of glove production volume at two older plants following the completion of refurbishment works over the last two quarters," UOB Kay Hian said in a note today.
The research house said margin, on a q-o-q basis, is expected to expand on firmer glove's average selling price and a more favourable US dollar to the ringgit in 1Q17.
It added that margin expansion is expected to be partially offset by the steep rebound in both nitrile and latex raw material prices, which it deemed to grow by 31% q-o-q and 37% q-o-q respectively.
"All in all, we expect sequentially stronger 1Q17 core earnings of RM47 million to RM52 million," UOB Kay Hian noted.