KUALA LUMPUR: Shares of rubber gloves companies have outperformed Bursa Malaysia's FBM KLCI but it is still not the time to take profits, Affin Hwang Capital said.
The firm noted that year-to-date, the rubber gloves sector had gained 43.9 per cent to outperform the Benchmark index by 57.8 percentage points.
"Demand for rubber gloves continues to surprise us on the upside, as some manufacturers have locked in orders until the end of 2020.
"Although manufacturers have increased their utilisation to above 90 per cent, it is still insufficient to satisfy the spike in demand," Affin Hwang said in a report today.
Affin Hwang is surprised with the sales as it had assumed that demand would normalise by the third quarter (Q3) of 2020.
"We believe that there is also a high possibility that manufacturers will continue increase the selling price by another five to eight per cent for Q4 2020," it said.
Affin Hwang believes that rubber glove manufacturers could also be a beneficiary of the low oil price.
Prices of their key raw material, rubber (latex and nitrile), do have a positive correlation to the oil price movement.
Given the recent decrease in oil prices by 80 per cent since the beginning of the year, the firm expects lower rubber prices for the next few months.
It also revised its earnings growth for the sector in 2020 to increase by 21.5 per cent from 15.6 per cent.
Affin Hwang maintained its "overweight" call on the sector, with Top Glove Corp Bhd and Kossan Rubber Industries Bhd being its top "buys".