- A medical study cited by a recent Bloomberg article suggested that the H7N9 bird flu strain which surfaced this past April in China is not fully suppressed and is still in a dormant state.

- According to the World Health Organisation (WHO), previous bird flu viruses, including the H5N1 which occurred in 2007, exhibited a temporal pattern. We understand that the virus could spread once the current dry and warm season ends as the flu season is highly correlated to the winter months.

- The last reported case, which came after a 3-week lull, was on May 29. Thus far, the total number of laboratory-confirmed cases stands at 132 with 37 deaths recorded. No evidence supporting sustained human-to-human transmissions were documented.

- While the H7N9’s mortality rate of 36% is much lower than the H5N1’s 60%, it is still above that of the H1N1 strain which caused the 2009 swine flu pandemic. The latter had a fatality risk of 21%. With little yet known about the H7N9, we believe it could still pose a threat.

- Meanwhile, health officials warned that the impending Umrah (July) and Hajj (October) pilgrimages to Mecca may escalate the risk of a global MERS-CoV spread. The occurrence of a super spreader (a highly infectious person who spreads the disease) in a Saudi hospital had reaffirmed early suspicions of the similarities between this virus and its cousin, SARS (2003).

- WHO said it has been informed of 77 laboratory-confirmed human infections to-date, including 40 deaths. The Middle East region appears to be the central transmission point for the virus with the bulk of cases reported in Saudi Arabia (62 out of the 77). Cases of limited transmission among patients and their close contacts have also been registered in France, Italy and the United Kingdom.

- An escalation of either the H7N9 bird flu or MERS-CoV outbreak to a pandemic will be a boon for the domestic rubber glove players (63% of world market share) who are already enjoying healthy demand growth (YoY 1Q13 volumes: +8% to +23%). Capacity utilisations are at an average of 88% (except for Top Glove, at 70%).

- Together with plunging raw material prices (latex: -12% YTD) and strengthening USD against the RM (+4.2% YTD), rubber glove manufacturers’ earnings could be enhanced further should the situation worsen. This would mirror the conditions surrounding the H1N1 pandemic. This time around, however, players may accelerate their expansion plans to prevent a supply shortage (average CY13 capacity growth: +3%).

- We reiterate our OVERWEIGHT recommendation on the rubber gloves sector with BUYs on Top Glove Corp (FV: RM7.15/share) and Kossan Rubber Industries (FV: u.r.). Hartalega Holdings (FV: RM6.00/share) and Supermax Corp (FV: RM2.15/share) remain as HOLDs.

Source: AmeSecurities