After a weak 6MFY19 results in wake of rising raw material costs (e.g. latex/butadiene), aggressive pricing competition and unfavourable USD/MYR, cloudy skies are expected to clear in 2H, with easing pricing competition and improved supply-demand dynamics due to managed and staggered capacity expansion. Moreover, trade diversions from China to Malaysia amid heightened US-China tensions and weakening ringgit (starting from May) coupled with defensive long-term prospects and inelastic demand for rubber gloves would continue to support sector’s appeal. TOPGLOV (BUY-RM5.30 TP) remains HLIB sector top pick whilst technically attractive plays are COMFORT and SUPERMX.

COMFORT: Following the LT downtrend line breakout, the stock has been trending sideways between the RM0.755 (52W low on 5 Aug) and RM0.815 (SMA100) levels over the past two months. The MACD indicator is flat whilst the RSI and stochastic indicators are still hovering in oversold levels. Hence, we are monitoring for a big trend in the near term. Should the price breakout above RM0.815, next target will be set around RM0.845 (SMA200) before reaching our LT objective at RM0.905 (61.8% FR). Support will be located around RM0.78 (16 Aug low), followed by RM0.755. Cut loss at RM0.75.

SUPERMX: Share prices were able to form a base above the support trendline after hitting YTD low of RM1.40 on 26 Mar. Trend and momentum indicators are flashing positive signals. Hence, we believe that SUPERMX is poised for an impending SMA200 breakout near RM1.61. Next target will be located at RM1.72 (50% FR) and RM1.80 (61.8% FR) before reaching our LT objective at RM1.90 (76.4% FR). Support will be located around RM1.54 (SMA30), followed RM1.50. Cut loss at RM1.46

TOPGLOVE: Following the flag formation, share prices have been trending higher in the last two weeks. Indicators are still showing positive momentum to drive prices higher to RM4.82 (higher BB) and RM4.93 (SMA200) territory. A strong breakout above RM4.93 will spur prices to our LT objective at RM5.21 (20 Feb high). Supports are situated at RM4.66 (SMA50), followed by RM4.60 (SMA30). Cut loss at RM4.55.

Source: Hong Leong Investment Bank Research - 12 Sept 2019