MALAYSIA: Better days for rubber glove sector

In a research note today (5 Jan. 2012), OSK said, should the virus continue to spread, it would be positive for the sector, just like in 2009 when the influenza A (H1N1) virus was declared a pandemic.

"During the 2009 H1N1 pandemic, all the share prices of rubber glove stocks rallied due to their consistent quarters of earnings improvement,” it said.

It said compared with 2009/2010, competition had lessened, which would augur well for the sector's earnings. OSK said latex price, which made up 60%-70% of glove makers' total cost, had retraced to RM6.50 per kg from a high of RM11.

"The main reasons for the drop include a slowdown in the car sector as tyre used up about 70% of global natural rubber, less speculation on the commodities, including latex, and the recent Thai floods not affecting the country's plantations,” it said.

OSK said it remained positive on the sector for financial year 2012 even without a healthcare pandemic and would maintain its "overweight” call.

"We continue to 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,” it said.

It said Supermax Corp Bhd remained its top sector pick. "Its earnings are more sustainable as the firm derives secondary income from its distribution business.”Source: Daily "The Star", Kuala Lumpur; 5 Jan 2012(Syed Rashid Ali, Karachi, Pakistan)