Return of H7N9 bird flu - Rubber counters

Return of H7N9 bird flu
Business & Markets 2013
Written by AmResearch
Wednesday, 14 August 2013 09:03

Rubber gloves
Maintain overweight: The Wall Street Journal reported that Guangdong province in China recorded its first confirmed case of H7N9 bird flu over the weekend.

Recall that the H7N9 virus first surfaced in humans in April this year in eastern China. It has since spread to other neighbouring cities and has to date infected 135 people, killing 44 of them.

In recent weeks, however, the number of cases had dropped significantly with the Guangdong case coming in after a three-week lull.

We are not surprised by the latest report as we had in one of our earlier reports pointed out that the virus had not been fully suppressed and was only in a dormant state.

According to the World Health Organisation (WHO), previous bird flu viruses, including the H5N1 which surfaced in 2007, exhibited a temporal pattern. We understand that the virus could spread once the current dry and warm season ends as the flu season is highly correlated to the winter months.

In addition, we note that the Guangdong-Hong Kong boundary crossing is the busiest in the world. With more than 500,000 people travelling either way daily, the virus remains a deadly threat — more so if it mutates into a form that is easily transmissible between humans. No evidence supporting sustained human-to-human transmissions has been documented thus far.

Should the current epidemic worsen and manifest into a prolonged pandemic, we believe the greatest beneficiaries would be the latex glove manufacturers due to immediate uptrading activities.

We understand that China has a relatively low glove usage per capita (4.8 pieces against 149.3 pieces in the US) and greater price sensitivity. To be more specific, we foresee an uptick in the usage of examination gloves, which make up the bulk of rubber glove exports.

To put things into perspective, the last three outbreaks/pandemics (2003: SARS; 2007: H5N1 avian flu; 2009: H1N1 swine flu) saw worldwide glove demand rise by between 11% and 24% in the year they occurred.

While the H7N9's mortality rate of 36% is much lower than the H5N1's 60%, it is still above that of the H1N1 strain which caused the 2009 swine flu pandemic. The latter had a fatality risk of 21%. With little yet known about the H7N9, we believe it could still pose a threat.

All in all, we reiterate our "overweight" stance on the rubber gloves sector. Top Glove Corp Bhd (fair value [FV]: RM7.15 per share) and KOSSAN RUBBER INDUSTRIES BHD [] (FV:RM6.30) remain our top "buys" while we maintain our "hold" recommendation on HARTALEGA HOLDINGS BHD [] (FV: RM6) and Supermax Corp Bhd (FV: RM2.15). — AmResearch, Aug 13


This article first appeared in The Edge Financial Daily, on August 14, 2013.