Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: OSK



OSK Research is maintaining a "neutral" call on Top Glove Corporation as the current operating environment of all rubber glove manufacturers is still unfavourable.

Top Glove in its analyst briefing yesterday highlighted issues such as the trend of high latex prices, forex issues and supply and demand for gloves.

OSK said the current high latex price of about RM7.50/kg would continue to erode all the rubber glove manufacturers' margins, until probably the second half of the current year 2011.
It believes the reversal in the current uptrend in price would likely come during the second half of the current year 2011 rather than in the immediate term.

"The Top Glove management did acknowledge, that it would be a matter of time before the uptrend in price reverses itself and although this seemed to comfort some of the investors, what was not mentioned was the timing of this reversal.

"This is due to most rubber glove manufacturers not having stocked up much on latex supply and hence, any latex price drop, would present a buying opportunity," it said in its research note today.

Going forward, OSK said it expects the dollar to restrengthen against the ringgit, although not substantially. Nonetheless, it added, this would be good news for all rubber glove manufacturers, since most of their transaction is in the dollar.

The current weakening of the dollar against the ringgit is not good for rubber glove players, as would be a time lag for them, to price the unfavourable movement into their new sales contracts, it explained.

Touching on why there was no 100 per cent latex cost pass through, OSK said it was due to the normalisation in demand for examination gloves and customers would expect the rubber glove manufacturer to bear part of the high latex price.

Meanwhile, MIDF Research said in the glove supply surplus situation, competitive pricing is a key factor to attract customers.

Hence, it explained, this placed glove makers in a less favourable position to pass on their extra costs as compared to when the supply shortage happened.

"We expect quarter-on-quarter, Top Gloves' revenue to remain flat for the next two to three months, from five to six months previously," it said. -- Bernama