KUALA LUMPUR (Nov 23): RHB Investment Bank Bhd expects strong numbers from Rubberex Corp (M) Bhd in 4Q20 and FY21 after the completion of its nitrile glove production capacity expansion earlier this month, which should boost its total capacity by a whopping 150% to 2.5 billion pieces per annum.

The research house's analyst Alan Lim said in a note today that the company's new factory has an annual capacity of 1.5 billion pieces and two out of its five lines are already running.

He added that the factory is expected to start contributing to earnings this month.

“For December, we expect all five lines to be operating. Due to the volume increase and higher average selling price (ASP), we expect 4Q20 earnings to be much better quarter-on-quarter.

“Full earnings contributions from the new plant will be seen in FY21, which points to a positive outlook for the company,” he said.

Rubberex has also announced the acquisition of two parcels of leasehold industrial land in Kinta, Perak. The total size is 11.9 acres, and the land valuation works out to RM22 per sq ft.

“We gather that the acquisition was done to expand its nitrile glove manufacturing capacity — this is expected to be completed in 1Q21.

“We are positive on the deal, since capacity expansion bodes well for future earnings. However, we keep our earnings estimates unchanged for now, while we await details on the planned capacity expansion,” he said.

Meanwhile, Lim said Rubberex’s 3Q20 results met its expectations, with earnings surging 72% quarter-on-quarter.

“We deem its results as being in line, as we expect robust 4Q20 numbers, due to the increase in ASP and the maiden contribution from its new facility,” he said.

According to Lim, the strong earnings growth was caused by revenue climbing by 24% quarter-on-quarter and 75% year-on-year. This is in line with the ASP hike and sales volume growth.

In the short term, Lim said its 4Q20 earnings should improve quarter-on-quarter on the ASP increase and maiden contribution from the new plant.

In the long run, he opined that Rubberex should benefit from the growth in demand for gloves, which is expected to increase by 8% to 10% annually.

Lim maintained buy call and target price (TP) of RM3 on Rubberex.

“Our TP implies 9.8 times of FY21 price to earnings ratio, which is at a 35% discount to the peer average, and reflects the company’s smaller market cap and liquidity,” he said.

At the time of writing, Rubberex rose 3 sen or 1.46% to RM2.08, valuing the group at RM1.71 billion.

Lam Jian Wyn

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