Glove makers in play

by **hlk** Wed 05 Oct 2011, 07:40

Kuala Lumpur: Glove makers rallied against the bearish tide, as equity investors bet that a strong US dollar and weakening latex price will help boost profit margins.

Natural rubber latex (NRL) prices are down by 26 per cent from their peak of RM10.93 per kg in April this year, while the ringgit has weakened against the greenback in a short time.

The ringgit now trades at a 15 month low of about RM3.20 against the US dollar, while barely a month ago, the currency was trading at RM2.99 against the greenback.

"Such factors will improve the profit margins of glove makers, who, for the best part of the year, were sold down due to rising NRL and a strong ringgit against the US dollar," said Mercury Securities head of research Edmund Tham.

Tham, however, was taken aback by the strong buying interest in the glove makers, considering that the confidence level among equity investors is currently low.

At the trading floor yesterday, Top Glove Corp Bhd, the world's biggest rubber glove maker, surged 34 sen to close at RM4.26, while Supermax Corp Bhd, a rival glove maker that also has a market capitalisation of over RM1 billion, ended the day 48 sen higher at RM3.25 a share.

Other glove makers like Latexx Partners Bhd and Kossan Rubber Industries Bhd also ended the trading day on a positive note.

Latexx was up 18 sen to RM1.56 a share, while Kossan rose 17 sen to RM2.86 a share.

"From the way the trades were done, I suspect the buying was done by funds. However, it's anybody's guess if the rally will have a long life span," said Tham.

Kossan Rubber's senior manager of group corporate affairs Edward Yip said the interest on glove makers was due to improved sentiment.

While the current rosy sentiment bodes well for glove exporters, Yip cautioned that the industry faces overcapacity concerns that could trigger price pressure for lower-end products from clients in emerging markets.

Latexx Partners Bhd managing director Low Bok Tek said if the current trend continues, he foresees glove orders picking up in the next quarter.

Low also cautioned that while manufacturers are hopeful of increased glove orders, the reality is the market continues to be plagued by volatile currency and commodity price movements.

Hartalega Holdings Holdings Bhd group managing director Kuan Kam Hon said the strengthening of the US dollar is temporary due to demand for the greenback.

"How long the US dollar can maintain its strength is anybody's guess," he said.

"There are obvious benefits, but in such a competitive environment, with overhanging capacities, glove companies may price their products competitively, giving away better margins. The real beneficiaries could be glove buyers, not the glovemakers," Kuan added.