KUALA LUMPUR (Oct 30): Kenanga IB Research has maintained its Overweight rating on the rubber glove sector and said the companies under its coverage were poised for a re-rating after three quarters in the lull.
In a note Thursday, the research house said that Gas Malaysia Bhd ( Financial Dashboard) in an announcement to Bursa Malaysia informed that the Government has approved the natural gas tariff revision for non-power sector in Peninsular Malaysia with effect from 1 November 2014 by an average of a mere 2.3%.
It said that ceteris paribus, assuming “no-cost pass through”, an average 2.3% increase in natural gas tariff was expected to hit rubber gloves players’ earnings by less than 1%.
However, Kenanga IB said it was not overly concerned since rubber gloves players generally were able to pass on the cost increase judging from past experience in previous electricity and natural gas tariff hikes back in end-2013 and lately in May 2014, respectively.
“Hence, we are maintaining our Overweight rating for the rubber gloves sector.
“After three quarters in the lull, we believe rubber glove players under our coverage ar
– e poised for re-rating,” it said.
Kenanga IB Research said the positive outlook was driven by commercial production of new capacity expected to come on-stream by 4QCY14, which will drive earnings growth.
It said the persistent concerns over falling demand, fears of oversupply and price wars were overplayed.
“Our Top Pick is Supermax. We like Supermax for: (i) re-rating catalyst upon commercial production of its new plant expected by end Dec (one line has started production) which dispelled market skepticism of persistent delays in the new plant, (ii) steep 40% discount to the sector average, and (iii) being a beneficiary of the strengthening USD against RM.
“We also have Outperform calls for Kossan (TP: RM5.23) and Hartalega (TP: RM7.48),” it said.
– TheEdge Markets.com
