Highlight Top Glove, Supermax, Kossan upgraded

Highlight Top Glove, Supermax, Kossan upgraded
Business & Markets 2013
Written by Chong Jin Hun of theedgemalaysia.com
Tuesday, 10 September 2013 12:40

KUALA LUMPUR (Sept 10): RHB Research Institute Sdn Bhd has raised its profit forecast and fair value for rubber glove makers Top Glove Corp Bhd, Supermax Corp Bhd and KOSSAN RUBBER INDUSTRIES BHD [].

The profit upgrade, together with higher fair values (FV) for the stocks, come amid a more optimistic outlook for the export-based industry.

In separate notes today, RHB said the upgrade for Top Glove, Supermax and Kossan is due to a stronger US dollar vis a vis the ringgit.

A weaker ringgit has prompted RHB to lower its ringgit foreign exchange rate assumption to RM3.20 to a dollar, from RM3.10 for 2013 and 2014.

This brighter view on the glove sector is held despite recent hike in fuel prices.

"We are optimistic on the rubber glove sector as market conditions are tilting in favour of glove makers. We are "overweight" on the sector owing to favourable raw material prices, the strengthening US dollar, minimal impact from a potential natural gas cost hike, and resilient glove demand," RHB said.

RHB said the research firm has upgraded its net profit forecast for Top Glove by 0.3% and 1.0% respectively for financial years ending August 31, 2013 (FY13) and 2014 (FY14) respectively.

Following the revision, RHB expects Top Glove to report FY13 and FY14 net profit of RM205.2 million and RM257.5 million respectively,.

"We continue to like Top Glove, as the new nitrile glove production capacity coming on line next year will boost its margins going forward. Maintain "buy", with its FV bumped up slightly to RM7.08 (from RM7.01),” RHB said. Top Glove is scheduled to announce its FY13 financials on Oct 11.

On Supermax, RHB said it has raised its net profit forecast for the firm by 4.8% to RM144.6 million for FY13 and 6.2% to RM166.6 million in FY14.

"All in, we remain positive on Supermax's growth prospects, backed by favourable raw material prices, rising production capacity, and increasing automation at its plants, which in turn boosts its operating efficiency.

"Maintain “buy” on the stock, with our FV nudged higher to RM3.01 (from RM2.84), at an unchanged 12x FY14 P/E," RHB said.

Meanwhile, RHB has its raised its net profit forecast for Kossan Rubber Industries Bhd by 8.4% and 2.1% respectively for FY13 and FY14 respectively.

Following the upgrade, RHB expects Kossan to post net profit of RM144.5 million and RM172.6 million respectively for both years.

"All in all, we continue to like Kossan’s 50:50 production mix of natural latex and nitrile gloves as well as its increasing expansion in the nitrile segment.

"We maintain our “buy” recommendation on the stock as we bump up our FV to RM7.53 (from RM7.38), premised on a 14x FY14 P/E,” said RHB.

HARTALEGA HOLDINGS BHD []’s earnings for the near future has also been revised upwards. But its fair value has been cut slightly to RM7.95.

According to RHB, it has revised upward its net profit forecast for Hartalega to RM270.2 million in FY14 from RM267.8 million previously.

"We are positive on the progress of plans for the NGC (next-generation integrated glove complex) and continue to like Hartalega’s leading technological and automation processes. We are pegging the stock to a 20.0x FY15F P/E, compared to its 5-year historical average of 18.0x, to derive a FV of MYR7.95 (from RM8.01). We also maintain our "buy" call," RHB said.

At 12.30pm midday market break, Top Glove shares rose five sen to RM6.25 while Supermax fell one sen to RM2.70. Kossan climbed 10 sen to RM6.88 while Hartalega declined two sen to RM7.02.