Bloomberg
Malaysian Glovemakers Fall
on Higher Rubber, Ringgit
April 13, 2010, 5:12 AM EDT
By Barry Porter
April 13 (Bloomberg) -- Malaysian glovemakers led by Top Glove Corp. declined in Kuala Lumpur trading on the prospect a surge in rubber prices and a higher ringgit will increase costs and lower the value of overseas earnings, damping earnings.
Top Glove fell 4.4 percent to 12.90 ringgit at the close, its biggest retreat in almost a year. About 21 percent of the company’s revenues in the year to Aug. 31 were made outside Malaysia. Supermax Corp., which makes the majority of its sales in America, slid 3.6 percent to 6.64 ringgit.
Rubber futures reached a 20-month high in Tokyo trading yesterday, increasing the cost of latex used in medical and other protective gloves, while the ringgit touched a 23-month high against the dollar. A higher local currency reduces the value of overseas sales when converted back into ringgit.
“With higher latex costs, a weaker ringgit against the U.S. dollar and potential pricier energy costs, we see growing concern for earlier-than-expected margin compression,” AmResearch said in a report on April 9. Investors are concerned that glove-makers won’t be able to pass on all the increased costs to their customers, it said.
AmResearch downgraded the sector to “underweight” on April 9. Top Glove was cut to “hold” with a lower fair value of 12.50 ringgit. Kossan Rubber Industries Bhd. was reduced to “hold” with its fair value trimmed to 7.65 ringgit. The stock lost 4.4 percent to 7.56 ringgit today.
Demand Boost
Glovemakers have outpaced the broader market in the past 12 months as global health scares bolstered medical glove demand. Top Glove has jumped 141 percent in the period as first-quarter and second-quarter earnings almost doubled from a year earlier. Kossan rallied 136 percent and Supermax gained 498 percent.
Global demand rose by 10 billion units last year, while Malaysia manufacturers increased output by less than 5 billion pieces, according to Jason Yap, an analyst with OSK Research Sdn.
“Demand is still strong compared to supply,” Yap said in a telephone interview today. “Maybe by the end of this year it will reach equilibrium when additional capacity comes on stream.”
Yap, who believes today’s drops are “short-term retracements”, retains “buy” ratings on Malaysia’s largest glove makers, with a 15.15 ringgit share target for Top Glove, 11.30 ringgit for Kossan and 10.00 ringgit for Supermax.
--Editors: Richard Frost, Reinie Booysen
To contact the reporter on this story: Barry Porter at bporter10@bloomberg.net
To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net
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