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CGS-CIMB Equities Research is staying Overweight on glove makers as their order book visibility remains strong until 1HCY21F.

KUALA LUMPUR: CGS-CIMB Equities Research is staying Overweight on glove makers as their order book visibility remains strong until 1HCY21F and average selling prices (ASPs) have continued to increase in the near term.

“We understand that most of the glove makers are still increasing their ASPs on a monthly basis due to favourable demand-supply dynamics. Therefore, we believe the increased demand and ASP hikes should lead to sequentially stronger results for all the glove makers, ” it said on Wednesday.

It said the current retracement in share prices of glove stocks offers attractive investment opportunities as glove manufacturers are key beneficiaries of strong global glove demand stemming from the Covid-19 pandemic.

“Our sector top picks are Top Glove and Supermax. We also have Adds on Hartalega and Kossan Rubber, ” it said.

To recap, CGS-CIMB Research said glovemakers’ share prices have recently retraced due to concerns of a Covid-19 vaccine and a windfall tax being imposed on glove companies.

It said further testing of Russia’s Covid-19 vaccine is vital while there is also no official statement on a potential windfall tax on glove makers.

It added the development of a Covid-19 vaccine may take longer than expected, with mass production unlikely to start in the next three to six months.

This is given the complexity of Covid-19 as there are different strains. Moreover, no Covid-19 vaccine has been proven safe and effective thus far.

The research house also said due to the expectations of supernormal profits by rubber glove companies on the back of the spike in glove demand from Covid-19, there has been market speculation on potential implementation of windfall tax on glove makers by the Malaysian government.

“This is mainly to boost government coffers given the recent economic downturn, in our view, ” it said.

“Based on our channel checks with Malaysian Rubber Glove Manufacturers Association (MARGMA), there have been no conversations of any sort with the government on this matter.

“On the contrary, MARGMA believes that imposing a windfall tax on glove companies could spur these companies to expand overseas, especially in countries with better tax incentives and sufficient workforce.

“Hence, the Malaysian government may potentially miss out on more tax payments from these expansions in the long run. Outlook of glove stocks remains upbeat at this juncture, ” it said.

https://www.thestar.com.my/business/business-news/2020/08/19/cgs-cimb-research-stays-overweight-on-glove-makers
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