NST BUSINESS
KUALA LUMPUR: The government can expect to collect more tax revenue from the rubber glove industry this year that can partially make up for reduced overall collection from most economic sectors.
Analysts expect rubber glove companies to post "super bumper" earnings on a spike in demand of the products following the Covid-19 pandemic.
The likes of Hartalega Holdings Bhd, Kossan Rubber Industries and Top Glove Corp Bhd are poised for record earnings this year as tight supply-demand pushes average selling price (ASP) of rubber gloves, they said.
A worse-than-expected Covid-19 spread globally should lead to higher gloves demand, the analysts added. This was due to the need to protect healthcare workers against this global pandemic.
The strong sales performance, meanwhile, is carried through the local stock exchange, with the sectoral stocks having gained some 30 per cent year-to-date, although profit-taking and a firmer ringgit trimmed their share prices today.
Kossan, Hartalega, Supermax Corp Bhd and Comfort Glove Bhd led decliners on Bursa Malaysia in early trade.
Kossan ended up the day 15 sen, or 1.94 per cent, lower to RM7.58, Hartalega dropped 12 sen, or 1.31 per cent, to RM9.01 from RM9.13, Supermax declined 4.71 per cent to RM4.25 and Confort Gloves down 8.07 per cent to RM2.05.
Kenanga Research said the industry had raised prices by 3.0-5.0 per cent in anticipation of higher demand.
The firm is more bullish on higher ASPs in the second half of the year due to
the present tight situation of buyers jockeying for position to secure
allocation.
Hong Leong Investment Bank Bhd said its channel checks revealed that all glove companies under its coverage had seen a surge in demand for gloves.
"We also understand that these increased orders are on a higher ASP since the Covid-19 outbreak," it added.
Kenanga Research said it had under-estimated the potential impact from higher-than-expected ASP and margins from OBM distribution on Supermax.
This is amid the current tight supply situation for gloves with buyers aggressively stockpiling critical medical supplies.
"Hence, we raised our FY20/FY21 net profit by 8.0/34.0 per cent to account for higher ASPs and utilisation," the firm added.
RHB Research said the financial year 2021 outlook for Hartalega was "extremely good" as the tight demand-supply dynamics had driven up ASP.
Hartalega's year ended March 31 2020 core net profit of RM470 million had met its expectation but beat consensus." said RHB Research, which raised its FY21-22 earnings forecast for Hartaleg by 21-31 per cent.
The RM470 million made up up 99 per cent and 103 per cent of RHB Research and street's FY20 core earnings.
Affin Hwang Capital raised Hartalega's FY21-22 net profit by 22 per cent and 19 per cent respectively.