KUALA LUMPUR: Kenanga Research maintained its ‘overweight’ rating for the rubber gloves sector as industry players are able to weather themselves from the revision of natural gas tariffs for the non-power sector.
The research firm said rubber gloves players were generally able to pass on the cost increase judging from past experience in previous electricity and natural gas tariff hikes back in 2013 and in 2014, respectively.
“After three quarters in the lull, we believe rubber glove players under our coverage are poised for re-rating.
“The positive outlook is driven by commercial production of new capacity expected to come on-stream by the fourth quarter of 2014, which will drive earnings growth,” said Kenanga Research in a note today.
In a filing to Bursa Malaysia yesterday, Gas Malaysia Bhd said the government had approved the natural gas tariff revision for the non-power sector in Peninsular Malaysia effective Nov 1, 2014 by an average of 2.3 per cent.
This is the second increase for natural gas within a year.
“We expect margins and earnings of glove players to sustain in subsequent quarters driven by sustained high demand for nitrile gloves, easing of both input raw material nitrile and latex prices, and capacity constraint for nitrile gloves,” said Kenanga Research.
It added that the downtrend in average selling prices (ASP) over the last two quarters were not entirely due to price competition but also to lower raw material prices.
“From our channel checks, players are generally facing full capacity constraint and have to turn away customers taking advantage of the lower ASPs which resulted in an overwhelming demand situation,” it added. – BERNAMA