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Friday, December 6, 2019

Rubber glove makers to see better performances in 2020

Friday, 06 Dec 20199:07 AM MYT

KUALA LUMPUR: Affin Hwang Capital Research is expecting better performances in the rubber glove sector starting in the first quarter of 2020 as the players are addressing the higher production costs and labour issues.

Furthermore, it expects 2020 to be a better year as glove makers would likely benefit from stronger demand from the US after its imposition of a 15% tariff on Chinese imported gloves.

"The improving prospects and likely stronger earnings growth will help with a re-rating of the sector; hence we upgrade our sector rating from Neutral to Outperform," it said.

Top Glove and Kossan are now the research house's top buys in the sector.

In 9M19, the sector earnings fell by 12% year-on-year, which was below Affin Hwang's and consensus estimates.

"Apart from the increase in production cost (higher utilities cost) arising from the natural gas price hike in July, the sector was also faced with labour shortage since the hard cap on overtime limited the total allowable overtime in a month to 104 hours only," it said.

Affin Hwang had cut its earnings forecasts for 2019-22E by 5% to 6% due to the industry-wide issues that resulted in declines in profit year-on-year for the period.

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