KUALA LUMPUR (July 10): AmInvestment Bank Research has initiated coverage on ACE Market-listed glove manufacturer Careplus Group Bhd with a "Buy" rating, valuing it at 56 sen based on 18 times financial year ending Dec 31, 2018 (FY18) earnings per share (EPS) of 3.1 sen.
In a report today, AmInvestment Bank said Careplus thrives in an industry largely dominated by the “big four” — Top Glove Corp Bhd, Hartalega Holdings Bhd, Kossan Rubber Industries Bhd and Supermax Corp Bhd.
“Careplus’ market share may be less than 1% but its key advantage lies in its strong distribution network in the Central and South American region,” the research house said, adding this region constituted 69% of Careplus’ revenue for FY16.
Being smallish in terms of market share, AmInvestment Bank said the group is able to provide better service to customers who are normally ignored by the "big four" and would be able to adapt quickly in a changing environment and demand.
The research house added the recent fall in latex prices amidst the strong US dollar has boosted earnings and encouraged capacity building.
Careplus has set in motion to expand its capacity to produce as much as 10 billion pieces of gloves annually by 2020, AmInvestment Bank said.
AmInvestment Bank noted the company's profit margin is projected to rise from the current 3% to 5%, as a result of better economies of scale and its global market share growth from about 1% now to around 4% by 2020.
Going forward, Careplus is eyeing markets like China, India and North America to absorb the additional capacity, the research house said.
“The discount of 20% against the sector's PE average of 22.3 times is due to its ACE Market listing status; small market share; easily affected by changes in market conditions and competition; and has yet to reach critical mass in its production,” it added.
However, AmInvestment Bank is bullish on the prospects of Careplus over its carefully-crafted expansion plan up to the year 2020.
At 10.52am, Careplus fell 1.25% or 0.5 sen to 39.5 sen, with 979,700 shares traded.
http://www.theedgemarkets.com/article/careplus-thrives-industry-dominated-big-four-says-aminvestment-bank-research
