KUALA LUMPUR: CIMB Equities Research retains its Overweight stance on the glove manufacturing sector, with the potential re-rating catalysts being a continuing uptick in demand, capacity expansion and strong earnings growth.
“Adventa and Supermax remain our top picks,” it said on Wednesday, March 24.
CIMB Research said the rubber glove sector did well during the quarters ending Dec-Feb, with core net profit for the six companies in our coverage rising on average 23% quarter-on-quarter and more than doubling year-on-year.
“Half of the companies topped our expectations. The results trend was consistent with our expectations of strong results due to pricing power stemming from robust demand,” it said.
This enabled margins to improve despite rising latex costs and a depreciating US$. It does not see any change to this picture of strong demand, which the manufacturers will be able to tap into, thanks to their continuing capacity expansion.
“We also expect the impact on margins to be minimal given the strong demand which will allow the companies to pass through the cost increases,” it said.