Rubber glove sector could see record profit

PETALING JAYA: Although the rubber glove sector has continued to outperform the market, it is not time to sell as a record profit year could be in the offing.

Affin Hwang Capital said this in a report issued to clients yesterday, noting that stock performance-wise, the sector has risen by 32% over the past two weeks and outperformed the benchmark FBM KLCI by 32.5 points.

The research outfit said demand for rubber gloves has continued to surprise on the upside, as some manufacturers have started accepting orders for delivery a year in advance, with 20% deposits.

“The strong demand has also given manufacturers the flexibility to continue raising selling prices, which we are now forecasting at 5%-8% per month starting from June, higher than the 1%-2% per month we had forecast earlier, “it said.

It said with the current robust demand, it believed that the sector should achieve record earnings in 2020.

“Unless Covid-19 is no longer a threat, the robust demand for rubber gloves is likely to stay, “Affin Hwang said.

For now, it believes that there will still be shortages of gloves in 2021, “although the problem will not be as severe as currently experienced.”

Having said that, it cautioned that demand could ease if a vaccine for Covid-19 is found.

As it stands, although the sector’s price to earnings ratio is currently trading above its historical average, the research house does not think that valuations are overstretched.

“We are not expecting any negative surprises in the earnings of the glove companies, for at least the next few quarters, as we do not foresee any execution risk.

“The strong earnings growth would likely help to re-rate the sector further.”

At the close yesterday, shares of some of the largest glove companies like Kossan Rubber Industries, Top Glove Corp Bhd and Hartalege Holdings Bhd all finished higher, extending their gains from previous weeks.