Date : 29th April 2020
STOCK : RUBBER GLOVES SECTOR - ITS TIME TO FLY AND FULLFILL DEMAND
Local rubber glove makers are estimated to chart strong improvement in their financial performance for FY19 and FY20, underpinned by higher demand for rubber products and resolved labour issues.
The coronavirus outbreak started in China has increased the demand for rubber gloves on the back of increased awareness across the region to prevent cross-contamination between virus carriers and caregivers. Now this Coronavirus confirmed as pandemic by World Health Organization.
The coronavirus sweeping across the world is a pandemic, the World Health Organization declared on 11th March 20. That time over 118,000 cases of COVID-19, the disease caused by the virus, in 114 countries around the world.This is the first pandemic since H1N1.
Currently, this Covid-19 pandemic, which has killed more than 213,000 people, will result in higher demand for rubber gloves as the healthcare sector contends with the rising number of infected individuals. Total Global cases now stood at 3 millions.
We will see most rubber glove stocks as defensive stocks now since their share prices have retraced quite significantly from their highs towards the end of the H1N1 pandemic in the first half of 2010.
Kim stick on his note that he saw most of rubber glove stocks as defensive stocks now. Since their share prices have retraced quite significantly from their highs towards the end of the H1N1 pandemic in the first half of 2010.
Kim's also listing his top pick is Supermax Corporation Bhd remained its top sector pick because its earnings are more sustainable as the firm derives secondary income from its distribution business.
As we know, we expect the world’s demand for natural and synthetic rubber medical gloves to be about 345 billion pieces this year while it was only 298 billion in 2019. Malaysia is looking to export about 65% or about 225 billion pieces or more depending on the spread and duration of Covid-19.
We believe Malaysian glove producers have been the global preferred suppliers because they have the capacity to meet the increased supply-demand. So, going forward, they should be able to perform better. The local glove producers could see improved margins early this year, driven by increased production.
So I think they could sustain the margin, in fact, they might see an expansion going forward. When they ramp up their utilisation rate and capacity, technically the cost will be lowered. We would think it is possible to expand margin.
WHY IT MUST CONTINUE RALLY UP THIS MAY?
1. Business allowed to operate full capacity tomorrow.
- Means Government had allowed rubber glove industry to run at full capacity.
- Means service providers as well as raw materials and packaging suppliers in the rubber glove industry can continue operating.
- So the production can fullfill all ordered and demand received. Its good move because
Malaysia is expected to produce 220 billion pieces of rubber gloves this year, and it is critical because rubber gloves are needed to fight COVID-19 pandemic has been killed
more than 200k people with 3 millions infected.
- As we know, Malaysia is the largest manufacturer of rubber medical gloves which supplies almost 65 percent of the global demand.
- Since the MCO was implemented on March 18, the government had only allowed 50% production capacity for these companies. So while the government has given the green light for companies in approved sectors to resume full operations from tomorrow, means 100% full capacity will use from now. Just MARGMA said the latest statement, for resuming full operations may take time. Maybe just take a weeks for some cases.
- I dont see there is a big issue for delays in returning back to normal levels.
2. SC and Bursa extend temporary short selling suspension amid Covid-19
volatility
- IDSS extended till June 30. So I forsee our KLCI could strengthen and strong rebound to get stay above certain levels.
- It involves the suspension of intraday short selling and regulated short selling, as well as intraday short selling by proprietary day traders. The suspension does not, however, apply to permitted short selling.
- The temporary suspension of short selling remains a short-term measure to provide stability and confidence in the Malaysian capital market. So we will see a good market starts from tomorrow till end-of June.
3. Oil prices keep tumbling, with no sign of stopping in near term
- The cost of a barrel of Brent in June is down 22% at $19.95, the lowest since 2002.Currently Oil remained total carnage though.
- U.S. WTI, which went negative last week, was down 10% having dived as much as 20% earlier after a scramble by the United States Oil Fund (USO) , the largest oil-focused U.S. exchange-traded product, to shift its holdings had underscored the dwindling capacity to store excess supply.
- Brent went down a more manageable 5% and had largely recovered by the time U.S. trading began, but it was still at only US$20 a barrel which is way below where even the most efficient producer countries can balance their finances.
WHY GLOVES SECTOR IS THE BEST?
1. Global demand - Rubber gloves sector to see upsides from surging world demand.
- We maintained overweight on the rubber gloves sector with expectations of surging demand from the US due to the trade-war effect. Since Sept 1, a 15% tariff has been imposed on Chinese-made medical and vinyl gloves, which should increase their pricing versus local rubber gloves.
- We also expects the positive impact to be felt from the final quarter of the year as US gloves demand switches to local glove players, where the US accounts for 28% to 55% of glove players' group sales.
2. Glove Shortage - From oversupply to shortage due to pandemic and MCO
- It was only last year when there were repeated concerns of an oversupply in the rubber glove industry that hogged the headlines. But the situation has completely changed today in just a span of just a few months into the year 2020 with talk of an oversupply in the rubber glove industry being firmly a thing of the past.
- The Covid-19 outbreak which is now categorised as a global pandemic has upended everything and there are now concerns of undersupply in the rubber glove industry at this very crucial time.
3. Exchange Rate USD/MYR For Export. ( Ringgit Loser)
- Export-based companies: Glove makers such as Top Glove Corp Bhd and Supermax Corp Bhd - who rake in US dollar-denominated revenues, will likely see an erosion in margins this year due to the stronger ringgit, unless they can pass on the additional costs to consumers.
4. Low Crude Oil Prices
- Rubber glove shares wil rise when oil prices fall actually. Rubber glove also on attention while oil prices crashing. Rubber will get cheaper to make as the price of crude oil drops. Production costs will be low.
5. No vaccine for COVID-19 yet.
- According to WHO. Vaccine for new coronavirus 'COVID-19' could be ready in 18 months. The first vaccine targeting China’s coronavirus could be available in 18 months, so we have to do everything today using available weapons. Told by WHO.
WHICH GLOVE COMPANY IS THE BEST TO INVEST?
- We are particpated only the Big-4 Gloves Company, which is :
1. TOP GLOVE
2. HARTA
3. KOSSAN
4. SUPERMX
- Source : http://www.kimstockwatch.com/todaycalls.html
- SUPERMX the best and the lowest P/E still and its become our first priority currently.
- Current Price : RM2.38
- TP1 & TP2 remained unchanged 4.30 & 5.50
- Warrant : SUPERMX-C84
- Target Price: TP1: 0.35 sen - TP2 0.55
Good luck and stay tuned! -
Only the rubber sectors will have a big jump and bright prospect for now!
- Article wrote by Kim
-= Kim's Group =-
www.kimstockwatch.com
https://klse.i3investor.com/blogs/spartan/2020-04-29-story-h1506170242-THIS_SECTOR_YOU_WONT_GET_TO_BUYBACK_AT_CHEAPER_PRICE_ON_MAY.jsp
