Hot Stocks Supermax, Kossan, Hartalega fall on firmer ringgit, oversupply concerns

by **Cals** Wed 09 Jul 2014, 08:51

Hot Stocks Supermax, Kossan, Hartalega fall on firmer ringgit, oversupply concerns

Business & Markets 2014

Written by Chong Jin Hun of theedgemalaysia.com

Tuesday, 08 July 2014 11:58

KUALA LUMPUR (July 8): Shares of rubber glove producers Supermax Corp Bhd, Kossan Rubber Industries Bhd and Hartalega Holdings Bhd fell as a firmer ringgit versus the US dollar prompted expectation that these firms' export-based income will be curbed.

At about 11.20am, Supermax Corp Bhd declined four sen or 1.8% to RM2.16. Kossan Rubber Industries Bhd dropped five sen or 1.2% to RM4.04 while Hartalega Holdings Bhd fell three sen or 0.5% to RM6.47.

Top Glove was traded unchanged at RM4.60 after falling one sen or 0.2% to RM4.59 earlier.

"The ringgit had an overnight impact on shares of rubber glove manufacturers.

"Kossan shares had risen only yesterday," a Public Investment Bank Bhd analyst told theedgemalaysia.com over telephone today.

Kenanga Investment Bank Bhd wrote in a note that the research firm had target prices (TP) of RM4.92 and RM3.23 for Top Glove and Supermax respectively.

Kenanga has TPs of RM5.13 and RM7.48 for Kossan and Hartalega respectively.

The ringgit strengthened to RM3.1778 against the greenback today on bets Malaysian policy makers will raise interest rates for the first time in three years, this Thursday, according to Bloomberg. This compares to RM3.3511 seen in February this year.

As rubber glove manufacturers' global sales are denominated in US dollars, a firmer ringgit will translate into lower income for these companies when their US dollar earnings are converted into the Malaysian currency.

The Public Investment analyst, however, said the performance of rubber glove manufacturers' shares in the longer term had to be assessed against industry dynamics.

In a note last Friday (July 4), the analyst said these include concerns over a potential rubber glove oversupply.

"Albeit world demand for rubber gloves is expected to grow around 8%/yr going forward. The general market remains concerned of the potential rubber glove glut, and thus are very cautious.

"As long as the perception of the oversupply continues, we may see lags in the re-rating of the sector. We do, however, acknowledge that industry players are focusing on technological and efficiency enhancements rather than capacity growth alone, which should maneuver the industry back towards a more positive sentiment, she said.

Investors are also taking note of lower natural rubber latex prices, which could prompt glove producers to reduce selling prices of their products.

This is due to their cost pass-through mechanism, by which, manufacturers can adjust glove prices higher or lower depending on their cost structures.

Bloomberg data showed that Malaysian natural rubber latex prices had declined to RM4.60 a kg from a six-month high of RM5 seen on March 26 this year.