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Thursday, March 24, 2016

Kossan remains CIMB Research’s top pick in glove sector

KUALA LUMPUR: CIMB Equities Research is retaining Kossan as its top pick in the gloves sector, given its earnings certainty due to lower correlation with external factors such as US dollar. 

It said on Thursday Kossan has not benefited significantly from currency in the past, given its hedged position and passing on of most of its cost savings.

The Food and Drug Administration (FDA) has proposed a ban on the usage of powdered medical gloves in the US. 

According to the FDA, the usage of powdered medical gloves, which includes powdered surgical gloves, may cause side effects such as medical issues and allergic reactions. 

“We are not surprised by this development, given that the FDA has issued warnings about the dangers of powdered gloves since 1997. 

“That said, we do not expect significant impact on the glove sector, as more than 90% of the glove exports to the US are either powder-free latex gloves or nitrile gloves. Note that 99% of nitrile gloves are powder-free,” it said.

CIMB Research said the FDA’s move is likely to prompt switching from powdered latex gloves to alternatives such as powder-free latex gloves or nitrile gloves. This is positive for the sector, as these alternatives generally earn better margins than powdered latex gloves. 

“We also believe that glove manufacturers will have no problem absorbing any additional nitrile demand that arises from the switching, given ongoing capacity expansion in this segment,” it said. 

CIMB Research said currently, the bulk of powdered latex glove exports from Malaysia go to emerging countries, which we believe are more price-sensitive. Notably, powdered latex gloves are the cheapest type of medical gloves available in the market today. 

Developed markets such as the US, UK and western Europe have always been more nitrile centric markets. Top Glove exports the most powdered latex gloves 

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