Kenanga Research expects the rubber gloves industry to benefit from the continuous slide in latex prices and the weakening ringgit against the US dollar.
The research house said latex prices would continue to dwindle throughout the year, trending steadily between RM5.50 a kg and RM6 a kg over the last six to nine months, due to higher production although the wintering months between February and May would support prices in the short-term.
“We believe the declining trend in the raw material prices could improve the glove makers’ margins. This benefit will eventually be passed down to purchasers via lower average selling prices,” it said in a research note today.
Kenanga said the other positive factor for the industry was the weakening of the ringgit against the US dollar.
“Since sales are dollar-denominated, theoretically, a depreciating ringgit against the dollar will lead to higher revenue for glove makers.
Excluding other factors, it said, a one per cent depreciation of the ringgit against the greenback would lead to an average one to two per cent increase in the net profit of rubber glove players.
Currently, the ringgit is hovering between RM3.08 and RM3.11 per US dollar.
However, it said the stable volume growth and the positive strengthening trend of the US dollar are expected to be negated by the minimum wage policy and over the longer term, higher natural gas prices.
In a bid to mitigate the effects of the policy, Kenanga said, most rubber glove players have adjusted upwards their average selling prices by two to four per cent and invested in the automation and computerisation of their manufacturing processes while gradually reducing their reliance on manual workers.
Nevertheless, the research has maintained “Neutral” rating on the sector and “Outperform” view on Kossan Rubber Industries with a target price of RM3.64.– Bernam
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