KUALA LUMPUR: There remain positive catalysts for the rubber glove sector even as sustained demand for rubber gloves continues to exceed expectations, says Affin Hwang Capital research.
The research house maintained its overweight rating on the sector while revising its 2020 earnings growth forecast higher to 21.5% from 15.6%.
Top Glove and Kossan are its top "buy" picks in the sector, raising their respective target prices to RM8.70 and RM7.70.
The research house said rubber glove manufacturers have locked in sales until the end of 2020, which outperformed its assumption that demand would normalise by 3Q20.
Owing to this, Affin Hwang suggests there is high possibility that manufacuters will further increase the selling price by another 5% to 8% for 4Q20.
Meanwhile, the low price environment could also benefit rubber glove producers as its key raw material, rubber, has a positive correlation to the price movement to oil prices.
"Given the recent decrease in oil prices by 80% since the beginning of the year, we are expecting lower rubber prices for the next few months," it said.
For rubber glove manufacturers, the cost of rubber for both latex and nitrile is 40% to 45% of the cost of goods sold.
The weakening ringgit also serves as a positive catalyst for the sector as nearly 100% of rubber glove sales are in US dollar. Affin Hwang expects demand for PPE-like glove to continue as the vaccine for Covid-19 is still being developed.
Source The Star