Malaysian rubber glove makers are getting used to a slower life after years of scorching growth as demand drops, latex prices soar and the dollar weakens.

World's No.1 glove exporter Top Glove recently said it expects to grow at a meagre 10 per cent in 2011, a far cry from the 50 per cent growth rate it has seen in the last two years.

Shares of Top Glove and its Malaysian peers such as Supermax Corp and Kossan Rubber, have dropped more than 20 per cent since touching all-time highs in July.

Will a rising ringgit and high latex prices continue to depress the stocks, or are the low prices a good entry point into the sector?

WHICH ARE THE TOP PICKS?

While analysts are divided on their recommendation on Top Glove, confidence in the stock is slipping. The mean recommendation has dropped by as much as 38 per cent in the last three months, according to Thomson Reuters Starmine data.

Most analysts have smaller firms like Supermax, Kossan and Hartalega Holdings as their top picks due to cheaper valuation and a product mix that includes nitrile gloves.

'All companies are facing the same sort of headwinds, but we prefer Supermax because of its pricing and#8212; it still trades at a single-digit multiple on a price-to-earnings ratio,' said Wong Li Hsia, an analyst with TA Securities.

Latex, which accounts for more than half of Top Glove's overall costs, is trading near a multi-year peak at RM7.85 per kilo. The ringgit is also trading near its highest levels since 2008 at 3.09 to the dollar.

While Top Glove shares trade at 14 times forward earnings, Supermax and Kossan trade at a multiple of 8-9 times.

Some industry watchers said the bigger concern was supply outstripping demand as firms from Australia, Thailand and other countries foray into the medical rubber gloves sector.

'Now, we are not looking so much at multiples,' said Ang Kok Heng, who helps manage about US$290 million at Phillip Capital Management in Kuala Lumpur.

'We are looking at the new supply from the new players and that will affect the Malaysian firms.'

Oversupply will hit Top Glove most because of its greater capacity than other players.

This month, at least 14 of the 17 analysts covering Top Glove have revised their annual earnings per share forecasts, cutting them by 10.4 per cent on average, according to Starmine.

However, the company's scale and size may help it turn around faster when the external factors are more favourable.

'During bad times the company with the highest capacity will get hit the most and the reverse happens when the environment is more favourable,' said OSK Research analyst Jason Yap, referring to Top Glove. Yap has a 'neutral' rating on the stock.

Some analysts said Top Glove could be a good entry point for foreign investors looking to invest in Malaysia.

'The sector trades at an average of 10.1 times forward earnings or just half the peak seen for some of the manufacturers in 2006-07,' said Farahnaz Ireena, an analyst with CIMB, who has an overweight rating on the sector. - Reuters"