Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: AMMB
KUALA LUMPUR: AmResearch Sdn Bhd has downgraded the rubber glove sector to underweight, and said Top Glove Corp's recent 2QFY10 results showed signs of normalisation in demand.
It said checks revealed shorter order lead time of 50 days for 2QFY10, as compared to 90 days in the preceding quarter.
On average, Top Glove and Kossan Rubber Industries (Kossan) have consistently recorded an order lead-time of 30 to 40 days during normalised trading periods, it said.
The implications from this is that demand growth had peaked and should decelerate going forward, and shift of pricing power from manufacturers to consumers to accelerate, exacerbated by oncoming additional production capacity as early as mid-2010, it said.
AmResearch said as such, there could be increased resistance from consumers to accept higher selling prices going forward.
With higher latex cost, weaker Ringgit against the US dollar and potentially pricier energy costs, it sees growing concern for earlier-than-expected margin compression, said the research house.
"All in, we have cut FY11F-12F earnings by 8%-11% for Top Glove and a smaller 2%-4% for Kossan on lower margins. In view of our less bullish stance on earnings going forward, we are downgrading Top Glove to a hold recommendation with lower fair value of RM12.50 based on PE of 13 times FY11F earnings.
"Following our sector de-rating, we are downgrading Kossan after pegging Kossan's FY10F earnings to a lower PE of 11 times to arrive at our revised fair value of RM7.65," it said.
Company Name: TOP GLOVE CORPORATION BHD
Research House: AMMB
KUALA LUMPUR: AmResearch Sdn Bhd has downgraded the rubber glove sector to underweight, and said Top Glove Corp's recent 2QFY10 results showed signs of normalisation in demand.
It said checks revealed shorter order lead time of 50 days for 2QFY10, as compared to 90 days in the preceding quarter.
On average, Top Glove and Kossan Rubber Industries (Kossan) have consistently recorded an order lead-time of 30 to 40 days during normalised trading periods, it said.
The implications from this is that demand growth had peaked and should decelerate going forward, and shift of pricing power from manufacturers to consumers to accelerate, exacerbated by oncoming additional production capacity as early as mid-2010, it said.
AmResearch said as such, there could be increased resistance from consumers to accept higher selling prices going forward.
With higher latex cost, weaker Ringgit against the US dollar and potentially pricier energy costs, it sees growing concern for earlier-than-expected margin compression, said the research house.
"All in, we have cut FY11F-12F earnings by 8%-11% for Top Glove and a smaller 2%-4% for Kossan on lower margins. In view of our less bullish stance on earnings going forward, we are downgrading Top Glove to a hold recommendation with lower fair value of RM12.50 based on PE of 13 times FY11F earnings.
"Following our sector de-rating, we are downgrading Kossan after pegging Kossan's FY10F earnings to a lower PE of 11 times to arrive at our revised fair value of RM7.65," it said.
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