Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD
Research House: OSK
Rubber gloves
Maintain overweight: Recently, we invited Supermax Corporation Bhd executive chairman and group managing director Datuk Seri Stanley Thai to give fund managers an update on the rubber glove industry. We gather that demand is still strong as most of the rubber glove manufacturers have sold forward up to September 2010 in spite of the current high selling prices of gloves reflecting a rise in latex price. Although margins will dip as glove makers only pass on the cost increase to their customers, most importantly the absolute net profit figures will be maintained and therefore EPS and fair values are intact. We remain overweight on the sector, with our top picks being Top Glove (Buy, TP: RM15.15), Supermax (Buy, TP: RM9.11) and Kossan (Buy, TP: RM11.30).
The global annual consumption of medical examination and surgical gloves is expected to reach about 155 billion pieces by 2011 from 135 billion pieces in 2009, boosted by growing healthcare awareness after the H1N1 pandemic and healthcare reforms in many countries and the recent passing of reforms in US as standards of living improve. Of the total world exports, Malaysia supplies 63% of global demand. Also, about 54% of the global market is shared among the top six rubber glove companies listed in Malaysia.
Medical grade gloves make up about 85% of Malaysia's total glove exports. The product mix between natural rubber and nitrile gloves is in the ratio of 74:26 while that for powder-free and powdered gloves is 67:33. More than 70% of these gloves are sold to developed countries, and there is huge potential demand from developing countries like China and India in the coming years.
Latex price has remained at a high of about RM7 per kg. The US dollar is still struggling to regain lost ground against the ringgit. Although rubber glove manufacturers can pass on most of the costs associated with these negative factors to their customers, they may experience a time lag in adjusting prices, especially in supplying to non-healthcare MNCs. Nevertheless, as supply still lags demand since most of gloves are sold forward up to September 2010, we believe these two factors would not pose a major threat to the rubber glove industry.
We remain positive owing to: 1) continuously strong demand from the medical and hygiene markets; 2) increasing awareness of health and cleanliness following the H1N1 pandemic; 3) the possibility of governments in developing countries making compulsory the use of gloves for the medical sector; 4) a recovery in the global economy and living standards rise; and 5) local rubber glove manufacturers again embarking on capacity expansion to boost revenues and profits. ' OSK Investment Research, June 22
This article appeared in The Edge Financial Daily, June 23, 2010.
Company Name: SUPERMAX CORPORATION BHD
Research House: OSK
Rubber gloves
Maintain overweight: Recently, we invited Supermax Corporation Bhd executive chairman and group managing director Datuk Seri Stanley Thai to give fund managers an update on the rubber glove industry. We gather that demand is still strong as most of the rubber glove manufacturers have sold forward up to September 2010 in spite of the current high selling prices of gloves reflecting a rise in latex price. Although margins will dip as glove makers only pass on the cost increase to their customers, most importantly the absolute net profit figures will be maintained and therefore EPS and fair values are intact. We remain overweight on the sector, with our top picks being Top Glove (Buy, TP: RM15.15), Supermax (Buy, TP: RM9.11) and Kossan (Buy, TP: RM11.30).
The global annual consumption of medical examination and surgical gloves is expected to reach about 155 billion pieces by 2011 from 135 billion pieces in 2009, boosted by growing healthcare awareness after the H1N1 pandemic and healthcare reforms in many countries and the recent passing of reforms in US as standards of living improve. Of the total world exports, Malaysia supplies 63% of global demand. Also, about 54% of the global market is shared among the top six rubber glove companies listed in Malaysia.
Medical grade gloves make up about 85% of Malaysia's total glove exports. The product mix between natural rubber and nitrile gloves is in the ratio of 74:26 while that for powder-free and powdered gloves is 67:33. More than 70% of these gloves are sold to developed countries, and there is huge potential demand from developing countries like China and India in the coming years.
Latex price has remained at a high of about RM7 per kg. The US dollar is still struggling to regain lost ground against the ringgit. Although rubber glove manufacturers can pass on most of the costs associated with these negative factors to their customers, they may experience a time lag in adjusting prices, especially in supplying to non-healthcare MNCs. Nevertheless, as supply still lags demand since most of gloves are sold forward up to September 2010, we believe these two factors would not pose a major threat to the rubber glove industry.
We remain positive owing to: 1) continuously strong demand from the medical and hygiene markets; 2) increasing awareness of health and cleanliness following the H1N1 pandemic; 3) the possibility of governments in developing countries making compulsory the use of gloves for the medical sector; 4) a recovery in the global economy and living standards rise; and 5) local rubber glove manufacturers again embarking on capacity expansion to boost revenues and profits. ' OSK Investment Research, June 22
This article appeared in The Edge Financial Daily, June 23, 2010.
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