The Covid-19 pandemic outbreak has led to sharp spike in rubber gloves demand in recent months, as distributors and government agencies scramble to purchase more medical gloves, in fear of a dire shortage of protective gears. The desperation for gloves has driven ASP higher and we expect the price uptrend to continue as demand for gloves remains strong. We adjust Hartalega and Kossan’s earnings forecast for FY20-FY22F by 11-124% to account for the higher ASP assumption and operational efficiency. We maintain our Neutral call on Kossan and Hartalega, but we upgrade Top Glove to Trading Buy, as our TP implies an upside of 25% following a retracement in its share price since our recent downgrade. We cut our rating on the sector to Neutral, as we believe the supernormal profit is not sustainable in the long run while current valuation has ran ahead of the fundamentals.
The players are also seeing a spike in ad-hoc orders due to government agencies and NGOs rushing in to replenish their inventories at a rate faster than drawdowns, CSR initiatives to distribute to the needy countries as well as preparation for a potential second wave of Covid-19. Note that these ad hoc orders are generally priced at a 50-150% premium as compared to the normal recurring orders. The increase in ad-hoc orders only started to gradually pick up in the month of May and the glove makers have guided that all incoming new capacities will be allocated to cater for spot orders.
Despite the end of wintering period, we expect raw material prices to continue trending upwards as we believe that the gradual reopening of economies will help to support the global automotive sector’s recovery and The International Rubber Study Group (IRSG) has revealed that the tire manufacturing sector accounts for 71% of the world’s rubber usage. Therefore, we are of view that the rubber prices will not slump in 2H20. While the quantum of ASP increase in the coming months should sufficiently cover the impact of higher raw material cost, margin expansion could be lower than expected.
Source: PublicInvest Research - 26 Jun 2020
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KOSSANCreated by PublicInvest | Nov 22, 2024
Where got windfall tax?
Think positive like Supermax directors
They might give free bonus
And special dividends!!
So better load up kaw kaw!!!
2020-06-26 21:47
This analyst is late to the game. Upgrade TP but downgrade call. That means s/he was wrong all the way to RM18 for TOPG. Not reliable. Where has this analyst been after all the concalls and results release from other glove makers before TOPG.
Earnings was above his/her estimate and still a hold. Sleeping on the job. I rather listen to Maybank and CIMB. They were the first to upgrade. They understand the industry dynamics better.
2020-06-28 15:52
And on windfall tax. Market still dont understand the current market situation. Demand > Supply. Windfall tax, the glove makers can just pass on the tax. No impact.
2020-06-28 15:54
windfall tax? use logic thinking. under this covid, the government want to take money from healthcare which helping the covid situation? sometimes , we just don't understand and simply speculate. if government were to do that, we can say, they are punishing the customer which is in difficult situation.
2020-06-28 16:46
Shinnzaii
What is the latest status of decision from gov to impose windfall tax on glove? impose or dun impose?glove stock need to run...hehe
2020-06-26 11:59