Investment Highlights

• We maintain our HOLD call on FBM KLCI ETF but trim our fair value (FV) to RM1.84 (from RM1.85) (Exhibit 1). Our FV is based on our FVs (for stocks under our coverage), consensus FVs (for stocks not under our coverage) and last traded price (for Hap Seng Consolidated, which is not under any coverage). It is at a 10% premium to its NAV of RM1.68 (Exhibit 1).

• The FV adjustment is largely to reflect the downgrade in our FVs for glove makers Top Glove (-8% to RM6.50) and Hartalega (-8% to RM12.50), and a slight drop (-3% to RM11.46) in Supermax’s consensus FV, offset by the upgrade in our FVs for banks CIMB (+10% to RM4.10) and Public Bank (+7% to RM19.00).

• We expect glove selling prices to start to ease within 1H2021 (after rising persistently over the last three quarters), as glove supply gradually outstrips glove demand, from a shortage situation at present.

• Post- pandemic, we believe the demand growth for gloves will normalise to 8–10%, driven by rising glove usage per capita on higher/stricter hygiene standards.

• On the supply side, expansion plans by existing players and new entrants should add about 120bil (+55%) pieces annually to global supply by the end of 2022. Top Glove, Supermax, Hartalega and Kossan will respectively add 30bil, 22bil, 12bil and 10bil pieces annually, with the balance coming from Sri Trang (Thailand), Intco Medical (China) and Blue Sail (China)

• Meanwhile, cost pressure will come from the rising cost of inputs latex and butadiene, as well as additional expenses incurred in relation to the upgrading the dormitory for foreign workers in compliance with the Worker’ Minimum Standards of Housing and Amenities Act 1990, also known as Act 446.

Source: AmInvest Research - 13 Jan 2021