Wednesday, October 21, 2015

Rubber Gloves: It's All about Earnings!

In the past few years, 2 out of the 4 large rubber glove producers have been market darlings. They are Harta and Kossan. Lately, Topglov has made it to that list, leaving out only Supermx.

Chart 1: Supermx, Topglov, Kossan & Harta's monthly chart as at Oct 20, 2015 9Source:

The share price run-up has been consistent with improved earnings. We can see the following:
1. Kossan & Topglov's share price rallied when their earnings trend higher.
2. The same was noted for Harta from FY2008 to FY2011 before flattened out in FY2012. Despite the earnings drifted lower in FY2013 & FY2014, share price correction was very minimal as it has been the top pick for the sector for quite a while. With earnings starting to rollback, Harta's share price is again on the rise.
3. Supermx's share price has been trapped in a large triangle as its earnings were flattish since FY2010.

 Chart 2: Supermx, Topglov, Kossan & Harta's P&L

Looking at the valuation table below, we can see that Kossan is the most expensive of the rubber glove producers. Kossan has PER & PBR of 32.6 & 6.0 times, respectively. Next in line is Topglov, with PER & PBR of 20.9 & 3.7 times, respectively. This cheaper valuation may reverse as Topglov rallies higher on good earnings and proposed 1-for-1 bonus issue.

Table: Supermx, Topglov, Kossan & Harta's Valuation

Based on the above, I would recommend a switch from Kossan to Topglov and Harta. Supermx will have to wait as the company is still sorting out its problems that is weighing down its earnings. For Topglov, the next few weeks or months will be like the good old days of 2004-2007 when it was the Master of the Universe!!

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Harta, Kossan, Topglov & Supermx.

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