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Monday, July 23, 2018

Furniture and glove makers winners in US-China trade war

Monday, 23 Jul 2018

In the rubber glove sector, possible winners (but receiving only minimal spillover benefits) are Top Glove Corp Bhd, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd.

KUALA LUMPUR: Malaysian’s furniture, wood-based panel and glove makers are the potential winners if the 10% import tariff on more than 5,000 new Chinese imports is set in motion in the US-China trade friction.

UOB Kay Hian Malaysia Research said the ongoing spat may just negatively affect the technology and electronics manufacturing services sectors.

“Nevertheless, Inari Amerton Bhd, VS Industry Bhd
image: and Globetronics Technology Bhd
continue to provide compelling values despite the market perceiving them to be losers,” it said in a strategy report.

To recap, last week, the US government upped the ante on the trade war dispute with China. In a fresh attempt, President Donald Trump’s administration is looking to impose a 10% tariff on more than 5,000 new Chinese imports worth US$200bil.

This threat came after China fought fire with fire – the US slapped 25% tariff on US$34bil of Chinese goods and Beijing reacted tit-for-tat by matching tariffs on the same amount of US products.

UOB Kay Hian Research noted that nonetheless, the conflict seemed to have recently abated, seeing how ZTE Corp’s case was resolved. The research house said the US and China made up 24% of Malaysia’s total export value.

Based on ranking, China is Malaysia’s second biggest export partner (13%) followed by the US (9%).

After vetting through the list of items that may be slapped by a 10% tariff, the research house identified sectors which could benefit from the recent US trade tantrum.

Within the furniture space, Lii Hen Industries Bhd
image: and Latitude Tree Holdings Bhd
are two stocks which caught the research house’s attention, considering 70%-90% of their sales are directed to the US.

Furthermore, both have solid balance sheets with a net cash position, making up 10%-20% of their corresponding market capitalisation. Valuation wise, they are trading at less than 10 times price-to-earnings (PE) while offering commendable dividend yields of more than 3%.

For wood-based panel makers, potential beneficiaries would be Mieco Chipboard Bhd
image:, Evergreen Fibreboard Bhd
, and HeveaBoard Bhd

In the rubber glove sector, possible winners (but receiving only minimal spillover benefits) are Top Glove Corp Bhd
image:, Hartalega Holdings Bhd
and Kossan Rubber Industries Bhd


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