Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: OSK
Rubber glove sector
Maintain overweight: On May 30, the government approved an electricity tariff hike for Tenaga Nasional Bhd and a gas price hike across industries. Rubber glove manufacturers, which currently enjoy a low tariff of RM15 per mmBTU, will have to pay 7% more for gas at RM16.07 per mmBTU.
We understand that energy cost accounts for 8% to 10% of rubber glove manufacturers' total costs, with energy cost comprising both electricity and natural gas in almost equal proportions. Hence, the net impact would still be less than 1%. Glovemakers can easily pass on the extra electricity cost to their customers.
Moreover, given that the quantum and time line of the hikes of every six months has been set, even if it is implemented, the rubber glove manufacturers would be able to make adjustments to their selling prices in advance and pass on almost 100% of the cost increase to their customers.
With the continuously high latex price of above RM9 per kg (RM9.55 per kg at May 30's close), latex cost accounts for about 60% of rubber glove manufacturers' total costs. Hence, we believe that more emphasis should be placed on this cost element over others. We expect the rubber price to either continue to remain high or commence on a downtrend given that the wintering season for rubber trees is now over.
We maintain our 'overweight' call. Our top picks remain Top Glove Corp Bhd ('buy', fair value: RM6.50), Supermax Corp Bhd ('buy', FV: RM6.91) and Kossan Rubber Industries Bhd ('buy', FV: RM5) because these companies will be the main beneficiaries when the latex price eases since they have a higher natural rubber glove mix, and'' they would be the biggest gainers in the event the latex price falls as they have the largest production capacity for medical gloves. ' OSK Research, May 31
This article appeared in The Edge Financial Daily, June 1, 2011.
Company Name: TOP GLOVE CORPORATION BHD
Research House: OSK
Rubber glove sector
Maintain overweight: On May 30, the government approved an electricity tariff hike for Tenaga Nasional Bhd and a gas price hike across industries. Rubber glove manufacturers, which currently enjoy a low tariff of RM15 per mmBTU, will have to pay 7% more for gas at RM16.07 per mmBTU.
We understand that energy cost accounts for 8% to 10% of rubber glove manufacturers' total costs, with energy cost comprising both electricity and natural gas in almost equal proportions. Hence, the net impact would still be less than 1%. Glovemakers can easily pass on the extra electricity cost to their customers.
Moreover, given that the quantum and time line of the hikes of every six months has been set, even if it is implemented, the rubber glove manufacturers would be able to make adjustments to their selling prices in advance and pass on almost 100% of the cost increase to their customers.
With the continuously high latex price of above RM9 per kg (RM9.55 per kg at May 30's close), latex cost accounts for about 60% of rubber glove manufacturers' total costs. Hence, we believe that more emphasis should be placed on this cost element over others. We expect the rubber price to either continue to remain high or commence on a downtrend given that the wintering season for rubber trees is now over.
We maintain our 'overweight' call. Our top picks remain Top Glove Corp Bhd ('buy', fair value: RM6.50), Supermax Corp Bhd ('buy', FV: RM6.91) and Kossan Rubber Industries Bhd ('buy', FV: RM5) because these companies will be the main beneficiaries when the latex price eases since they have a higher natural rubber glove mix, and'' they would be the biggest gainers in the event the latex price falls as they have the largest production capacity for medical gloves. ' OSK Research, May 31
This article appeared in The Edge Financial Daily, June 1, 2011.
No comments:
Post a Comment