CIMB Research maintains Overweight on glove sector

KUALA LUMPUR: CIMB Equities Research has an Overweight call on the glove sector with Adventa and Supermax being its top picks.

"Rising incidence of pandemic diseases like H1N1, improving standard of living and a wider market reach continue to underpin the sector’s growth," it said on Wednesday, April 14.

On the performance of the glove makers share prices recently, it said the stocks took a beating recently, which it suspected was partly due to comments made by Green TECHNOLOGY [], Energy and Water Minister Peter Chin, who confirmed that an increase in electricity rates was imminent as well as downgrades by some brokers.

"While we reckon that the overall sentiment for glove makers is weak, any share price weakness is an opportunity to accumulate given that the recent selldown may have been overdone," it said.

CIMB Research said in general, energy makes up about 10% of glovemakers’ cost and out of the total energy cost, 80% is natural gas. Hence, the impact of higher electricity bills on the bottomline is meager. In addition, the companies can easily pass on the higher cost to its customers.

"Also, our power analyst sees no urgent need for a tariffs hike by the Tenaga Nasional. Fundamentally, we have an OVERWEIGHT call on the sector with Adventa and Supermax being our top picks," it said.