18th June 2013
Top pick: Alliance says Hartalega has the strongest capacity compound annual growth rate of 14.9% over the next eight years.
PETALING JAYA: Hartalega Holdings Bhd and Kossan Rubber Industries Bhd are Alliance Research’s top picks for the glove sector, with the research house reiterating an “overweight” recommendation on the sector.
“Among the two, we like Hartalega as a medium to long-term investment (one to three years), as we are convinced that it will emerge as the industry’s game-changer in two year’s time, once its Next Generation Integrated Glove Manufacturing Complex (NGC) kick-starts in August 2014 which could yield a 6% extra margin due to better efficiency.
“Again, we believe this is a formidable edge for the company to grow its market share and bottom line as it has the capacity to lower selling prices vis-a-vis its competitors who have significantly lower margins,” said Alliance in its report yesterday.
Additionally, the research house noted that Hartalega has the strongest capacity compound annual growth rate of 14.9% over the next eight years.
“This justified the highest target price-to-earnings ratio of 18 times for the company,” it said.
Alliance said it is continuing to favour Kossan over the near term (12 months), noting that the company’s share price had already outperformed over the past six months.
“We believe that Kossan is still trading at an attractive valuation now (less than 10 times price-to-earnings ratio for calendar year 2014), as it moves up its value chain and improve its profitability.”
Additionally, Alliance said it was retaining its “neutral” call on both Top Glove Corp Bhd and Supermax Corp Bhd.
“We believe that strong nitrile migration wave could put them in a less favourable position, as both of the companies have less than 40% nitrile glove capacity now.
“Although we anticipate the stable and soft natural rubber (NR) latex price would benefit NR glove producers like Top Glove and Supermax, we remain concerned of potential NR glove margin compression as customers continue switching from NR glove to the nitrile glove due to the latter’s cost advantage,” it said.
According to Alliance, nitrile gloves still enjoy latex cost advantage of more than 20% over NR gloves as of May 2013.
“After taking into account the higher fuel cost for nitrile glove, we believe NR gloves will only be able to regain its price competitiveness, if latex price falls below RM4.50 per kg, which we think is unlikely given the potential intervention by governments of major producing countries that is Thailand, Malaysia and Indonesia.”
[Source]
No comments:
Post a Comment