Rubber glove shares rise on bird flu, weaker ringgit

by **Cals** Wed 29 Jan 2014, 10:05

Business & Markets 2014

Written by Chong Jin Hun of theedgemalaysia.com

Wednesday, 29 January 2014 09:24

KUALA LUMPUR: Shares of selected Malaysian rubber glove manufacturers rose on news of bird flu outbreaks in China and South Korea.

Stocks like Supermax Corp Bhd and Hartalega Holdings Bhd have also gained as the ringgit weakened against the US dollar.

A weaker ringgit bodes well for export-based rubber glove manufacturers as their US dollar-denominated earnings translate into higher income when converted into ringgit.

Supermax and Hartalega closed at RM2.87 (up 2.5%) and RM6.99 (up 3.25%) respectively while Kossan Rubber Industries Bhd changed hands at RM4.03.

Top Glove Corp Bhd rose as much as two sen or 0.4% to RM5.58 before erasing gains to close at RM5.51, falling 0.9% from the previous day.

An analyst from MIDF Amanah Investment Bank Bhd said news on disease outbreaks tends to generate demand for rubber gloves.

The analyst told the edge malaysia.com yesterday that rubber glove demand tends to rise as “preventive” measures against these outbreaks.

Bird flu cases in China and South Korea have made headlines in recent days.

Reuters reported that Hong Kong began culling 20,000 chickens and suspended imports of poultry from mainland China for 21 days from yesterday after the discovery of the H7N9 bird flu virus in a batch of chickens from the southern province of Guangdong.

The government order took effect two days before celebrations begin for Chinese New Year, when poultry sellers generally anticipate a surge in demand.

Meanwhile, South Korea is expanding a poultry cull in a bid to contain the spread of bird flu that has been found in an increasing number of farms around the country and in migratory birds.

The country’s agriculture ministry said the H5N8 strain of bird flu had been detected in six poultry farms and that there had been 13 cases in migratory birds since the first outbreak earlier this month.

Meanwhile, MIDF analyst said the impact of the weaker ringgit versus the US dollar may be “neutral” on certain companies like Hartalega. The firm specialises in synthetic rubber or nitrile gloves.

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Stocks like Supermax Corp Bhd have gained with news of bird flu cases and weak ringgit.

The impact is deemed neutral on Hartalega as the company, which sells its gloves in US dollars, also buys its raw material, nitrile (a crude oil by-product), in US dollars.

The analysts’ comments came at a time when the ringgit has depreciated to its weakest level in about 3½ years against the US dollar. The ringgit has depreciated as investors sold emerging market currencies and channeled funds to US dollar-denominated assets.

On Monday, Bloomberg data showed the ringgit was traded at 3.3485 versus the US dollar, its weakest level since May 27, 2010. During the period, the ringgit was transacted at its firmest level at RM2.9342 on July 27, 2011.
Yesterday, the ringgit was traded at RM3.347 versus the US dollar.

Kenanga Investment Bank Bhd said in a note yesterday it has a target price (TP) of RM6.10 for Top Glove shares. This comes with a “market perform” call for the stock.

Meanwhile, Kenanga has TPs of RM3.52 and RM4.46 for Supermax and Kossan respectively. Hartalega is seen fair-valued at RM8.13.

This article first appeared in The Edge Financial Daily, on January 29, 2014.