KUCHING: With the lacklustre demand of the past 12 months behind us, glovemakers are set to see its earnings skyrocket following a ramp up in gloves’ re-stocking activities as the current outbreak of the 2019 novel coronavirus (2019 nCoV) enforces higher hygiene standards.
Kenanga Investment Bank Bhd (Kenanga Research) expect potential higher average selling prices (ASPs) in anticipation of a surge in demand and moderating supply growth in the past 12 months.
This follows tell-tale signs of demand outstripping supply could potentially lead to higher ASPs.
“Looking at the stable raw material price, ceteris paribus, hike in ASPs is expected to lead to margins expansion,” it said in a sector outlook yesterday. “We understand that some players have raised prices in anticipation of higher demand and we also noted the current high 90 per cent utilisation rate for nitrile-centric players which is a stark contrast compared to the lacklustre demand in 2019.
“More importantly, even before the Wuhan virus crisis set in, there were nascent signs of a solid uptick in demand for rubber gloves in coming quarters. 3QCY19 results season indicated a positive recovery in demand and hence volume growth from industry leaders, usch as Top Glove Corporation Bhd (Top Glove) and Hartalega Holdings Bhd (Hartalega).
“From our ground checks, demand for nitrile gloves is picking up again with players’ new capacities swiftly taken up. We believe this uptick in demand is turning positive and should be reflected in players bottom-line in subsequent quarters.”
Macquarie Equities Research (MQ Research) also has a more positive view on the Malaysian rubber glove sector amid the coronavirus outbreak.
“Earnings growth is likely to be strong in coming quarters due to supportive demand growth from coronavirus and the US influenza season. We estimate new demand will result in a shortage of 10.8 billion pieces in 2020.
“The strong expected quarterly earnings into the first or second quarter of 2020 period onwards should rerate the stocks to 1.5 standard deviation towards its price to earnings (PE),” it said in a note earlier this week.
Notably, the 2019-nCoV cirus took only 1.5 month to reach more than 16,000 infections, which is comparatively faster than SARS and H1N1. WHO declared Coronavirus a global health emergency on January 30, 2020.
MQ Research expects the fear for coronavirus to continue to increase demand for rubber gloves globally as other countries step up their preparedness for the further outbreak.
To date, based on MQ Reserch’s checks, all the top five manufacturers in Malaysia have received urgent orders from China and HK and the orders are quite sizeable.
Additionally, the US is experiencing one of the worst flu seasons in five years. Percentage of medical visits for influenza like illness continues increasing.
The US practice is to use medical gloves during entire care for a patient. Demand from the US flu season is expected to increase until April/May, the typical period of low flu activity.
“MQ Research expects Coronavirus and the US flu season to drive global demand growth at 13 poer cent year on year,” it opined. “As a result, MQ Research estimates the market will experience a shortage of 10.8 billion pieces in 2020. Pricing power will likely start to tilt towards manufacturers and lead to a margin expansion.”
With a more positive view on the glove sector, MQ Research’s top pick is Top Glove, which has the most capacity addition in 2020E and biggest beneficiary of Coronavirus, with an increased target price of RM7.35 per share.
MQ Research also raises its target price on Hartalega to RM7.10 per share and upgrade to outperform from underperform.
“With the strong demand, both companies are poised to deliver stronger quarterly earnings in 1Q/2Q CY20,” it said.
Kenanga Research also raised its valuations to better reflect rubber gloves players’ prospects in anticipation of restocking activities, resilient earnings and constant evolution and progress to increase earnings.
“All in, we raised our valuations from 1.0SD to 1.5SD to better reflect rubber gloves players’ prospects in anticipation of restocking activities, resilience earnings and their constant evolution and progress to increase earnings.
“We believe rubber glove stocks deserved further re-rating and should trade at their previous peak PER valuations. We have an outperform call on Hartalega, Kossan Rubber Industries Bhd, Supermax Corporation Bhd and Top Glove. Out top pick in the sector is Hartalega.” — TheBorneoPost
from Business https://ift.tt/3bpjV5i
via Latest News in UK
No comments:
Post a Comment