Friday 29 Mar 2024
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KUALA LUMPUR (Dec 2): The Malaysian rubber glove sector looks ripe for a re-rating next year as domestic headwinds prompt investors to look at defensive stocks, according to AllianceDBS Research Sdn Bhd.

In a note today, AllianceDBS analyst Tan Kee Hong said local glove makers offered resilient earnings growth while being relatively insulated from the rising cost of doing business and a weaker ringgit

“We believe the glove sector will be re-rated in CY2015 as investors adopt a defensive strategy amid domestic macro headwind i.e. dampened consumer sentiment/consumption amid rising inflation and good and services tax (GST) implementation.

“Glove makers which are export-oriented will be sheltered from these domestic issues while an appreciating USD is another boost to exporters,” Tan said.

Tan Kee Hong said glove makers provide an attractive investment proposition for 2015 as they offer growth with minimal exposure to external macro factors amid rising consumption.

According to Tan, factors such as global population growth, rising healthcare spending, improving hygiene standards, and outbreak of infectious diseases, like avian flu and Ebola would continue to lift global glove demand by 6 percent to 8 percent annually.

AllianceDBS' top pick of the sector is Hartalega Holdings Bhd. Tan said Alliance had upgraded Hartalega shares to a "buy" with a target price of RM8.45.

“Hartalega and Kossan Rubber Industries Bhd have the most resilient earnings profile among the glove makers, making them viable alternatives to defensive stocks which are trading at relatively higher valuations,” Tan said.
 
According to AllianceDBS' estimates, glove sector earnings are expected to remain flat in 2014 before growing 16% per annum in 2015 and 2016.

Earnings growth is seen mainly driven by Kossan and Hartalega, Tan said.

Other notable local glove manufacturers include Top Glove Corp Bhd and Supermax Corp Bhd.

At 12.30pm, Hartalega went up one sen or 0.1% to RM6.71 while Kossan rose two sen or 0.5% to RM4.37

For comparison, the FBM KLCI fell 7.56 points or 0.4%.

Meanwhile, Top Glove Corp Bhd's share price was flat at RM4.63 while Supermax Corp Bhd fell three sen or 1.5% to RM2.02.

 

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