MAYBANK IB Research has maintained an “overweight” call on the rubber glove sector, with Kossan Rubber Industries Bhd and Hartalega Holdings Bhd as its top picks.
In its note yesterday, the research house said Gas Malaysia Bhd announced a mild 2.3 per cent gas price hike to RM19.77 per million british thermal units (mmbtu) from RM19.32 per mmbtu, effective last Saturday.
This is in line with the government’s schedule of raising gas price every six months. The last price hike of 19 per cent was in May.
Since gas fuel accounts for only six to seven per cent of local glove makers’ operating cost, the mild 2.3 per cent hike in gas cost represents less than one per cent increase in their total cost.
Interestingly, the analyst noted that local glove players have seen a jump in their orders for high-risk gloves, which offer superior protection with its extra thickness and extended cuff length. However, as high-risk gloves only make up less than five per cent of the producers’ total sales volume, its contribution is not significant.
Given the falling latex cost of 18 per cent since May, natural rubber-skewed glove players such as Top Glove Corp Bhd will see costlier gas being offset by cheaper latex.
On the other hand, as synthetic rubber latex cost had climbed seven per cent since May, Maybank IB believes nitrile-skewed players, such as Hartalega and Kossan, will have to absorb the cost increase, especially in this challenging operating environment.
On a brighter note, the scheduled electricity hike is not likely to materialise in the near-term due to the low coal price. In any case, glove players have also put in place various initiatives to raise efficiency and counter the cost inflation.
– nst.com.my
