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Analysis Short-term weakness in rubber glove shares seen
by Cals Thu 26 Sep 2013, 14:48
Analysis Short-term weakness in rubber glove shares seen
Business & Markets 2013
Written by Chong Jin Hun of theedgemalaysia.com
Thursday, 26 September 2013 11:47
KUALA LUMPUR (Sept 26): Malaysian rubber glove manufacturers' share prices may see short-term weakness in anticipation of a firmer ringgit against the US dollar, Hong Leong Investment Bank Bhd says.
As export-based glove producers sell their products in US dollars, a firmer ringgit will translate into less income for these companies when they convert their income into the local currency.
In a note today, Hong Leong said the research house expects the ringgit to trade stronger within the RM3.20 to RM3.25 range. The ringgit had strengthened to RM3.14 against the US dollar last Thursday (Sept 19) after the US Federal Reserve said it will continue with its current quantum of bond purchases to support the world's largest economy.
"Notwithstanding the recent adjustment in MYR rate, valuation of rubber glove stocks surged further to a high of 17.3x. According to the sensitivity of the model, a MYR appreciation from RM3.33/USD to ~RM3.20/USD should cause a correction of sector valuation to 16.7x.
“As such, we believe that share prices could experience some short-term weakness due to the recent adjustment in macro scenario," Hong Leong said.
The research's firm assessment on rubber glove stocks assumes a natural rubber latex price of RM5.51 a kg.
Despite anticipation of share price weakness, Hong Leong is maintaining its "neutral" call for the rubber glove sector. The research firm said it has also retained its ratings and target prices (TP) for shares of glove producers under its coverage.
Hong Leong recommends a "buy" call for KOSSAN RUBBER INDUSTRIES BHD [] with a TP of RM7.30. The research firm has "hold" calls for HARTALEGA HOLDINGS BHD [] and Top Glove Corp Bhd.
Hartalega and Top Glove are seen fairly valued at RM6.37 and RM6.09 respectively.
"Kossan remains our favourite due to its undemanding valuations relative to peers," Hong Leong said.
Business & Markets 2013
Written by Chong Jin Hun of theedgemalaysia.com
Thursday, 26 September 2013 11:47
KUALA LUMPUR (Sept 26): Malaysian rubber glove manufacturers' share prices may see short-term weakness in anticipation of a firmer ringgit against the US dollar, Hong Leong Investment Bank Bhd says.
As export-based glove producers sell their products in US dollars, a firmer ringgit will translate into less income for these companies when they convert their income into the local currency.
In a note today, Hong Leong said the research house expects the ringgit to trade stronger within the RM3.20 to RM3.25 range. The ringgit had strengthened to RM3.14 against the US dollar last Thursday (Sept 19) after the US Federal Reserve said it will continue with its current quantum of bond purchases to support the world's largest economy.
"Notwithstanding the recent adjustment in MYR rate, valuation of rubber glove stocks surged further to a high of 17.3x. According to the sensitivity of the model, a MYR appreciation from RM3.33/USD to ~RM3.20/USD should cause a correction of sector valuation to 16.7x.
“As such, we believe that share prices could experience some short-term weakness due to the recent adjustment in macro scenario," Hong Leong said.
The research's firm assessment on rubber glove stocks assumes a natural rubber latex price of RM5.51 a kg.
Despite anticipation of share price weakness, Hong Leong is maintaining its "neutral" call for the rubber glove sector. The research firm said it has also retained its ratings and target prices (TP) for shares of glove producers under its coverage.
Hong Leong recommends a "buy" call for KOSSAN RUBBER INDUSTRIES BHD [] with a TP of RM7.30. The research firm has "hold" calls for HARTALEGA HOLDINGS BHD [] and Top Glove Corp Bhd.
Hartalega and Top Glove are seen fairly valued at RM6.37 and RM6.09 respectively.
"Kossan remains our favourite due to its undemanding valuations relative to peers," Hong Leong said.
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