Latexx's good results- a breather for glove makers?

Results Comment

Investors are waiting anxiously for the results for QE30/6/2010 for either Latexx or Supermx or Harta or Kossan. The reason for the anxious wait was due to poor showing by Topglov & Adventa in their last quarterly results where we saw a break in the sequential rise in bottom-line for these glove makers, with Topglov's net profit down 10% q-o-q for QE31/5/2010 while Adventa's net profit down a whooping 31% q-o-q for QE30/4/2010.

Last Friday, Latexx announced the results for QE30/6/2010, where its net profit increased 4% q-o-q or 89% y-o-y to RM21.6 million while turnover increased by 7% q-o-q or 81% y-o-y to RM134 million. The sequential increase in the bottom-line is comforting. The company explained the better performance was due to increased sales volume & improved overall efficiency. However, it admitted that it still faces strong challenges from the increase in average latex price and the weakening of US dollar.


Table: Latexx's last 8 quarterly results


Chart 1: Latexx's last 8 quarterly results

High latex price and weak USD to drag down glove makers

From Chart 2 below, rubber price (a proxy to the cost of rubber latex) may rise again after a correction lasting about 4 months from April to July this year. Similarly, USD is poised to go lower after breaking the horizontal support at 3.16-3.18 (see Chart 3).



Chart 2: SOCOM's rubber price chart on y-o-y (Source: Rubbernet)


Chart 3: USD-RM's daily chart as at August 6, 2010 (Source: Yahoo Finance)

Technical Outlook

Latexx has been trading sideway after making a high of RM4.91 in January. The trading range is between RM3.30 & RM4.20.


Chart 4: Latexx's weekly chart as at August 6, 2010 (Source: Quickcharts)

Conclusion

Based on Latexx's good results for QE30/6/2010, the rubber glove makers may enjoy a respite from the sell-off in the past few days. However, the fall in the price of rubber latex appears to be over. This coupled with the renewed weakness in the USD will continue to affect the performance of rubber glove makers for the next few quarters.