Wednesday, June 29, 2016

Rubber Glove Sector Again

After the Brexit, investors are shifting their money to safe assets, like US bonds, gold & USD. Until the dust has settled, we can expect USD to remain strong and that will benefit our exporters. Of all the export sectors, the rubber glove sector will probably stand out.

Kenanga has an OUTPERFORM rating for this sector as well as all the stocks in the sector. I have appended below the valuation table for the 4 main stocks involved in rubber glove production.

Table: Rubber Glove Stocks Valuation

I have also appended below the charts with profits trend for your easy viewing. We can see the following:

  • Price charts are in line with profits movement.
  • Harta & Kossan's profits are less volatile compared to Topglov & Supermx. That may be due to "careful management".
  • Except for Supermx, quarterly profits for the other 3 stocks made a new high in 2015 compared to 2009.

Chart: Rubber Glove Stocks Price Charts & Profit Charts
While all the rubber stocks may out-perform the market, their individual performance will be determined by the following:
  • Harta is still the most expensive stock. This may change if it can deliver the promised rise in its profit that comes along with its expansion program.
  • Topglov and Supermx are trading at very attractive multiples. While Topglov share price has risen substantially (as well as corrected back substantially), the price run-up was brought on by impressive profit in the past 4 quarters. I am however cautious of Topglov after its big rally - especially the boost from its bonus issue as well as a secondary listing on SGX. 
  • Supermx was a laggard - for good reason-  until early part of this year. Its rally seems to be a catch-up rally as the stock has yet to deliver on its bottom-line performance.
  • Kossan is my pick for this sector. It is not the cheapest but it has been the most consistent performer.
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, Supermx & Topglov

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