Malaysia Rubber Industry Analysis
Rubber Gloves | M A L A Y S I A
HEALTHCARE & PHARMACEUTICALS
NOMURA SECURITIES MALAYSIA SDN BHD
Jacinda Loh Wai Kee Choong
+60 3 2027 6889 +60 3 2027 6893
jacinda.loh@nomura.com waikee.choong@nomura.com
NEW THEME
A N C H O R
R E P O R T
Another good stretch
Even after a good run for Malaysian rubber glove stocks over the past 12 months, we think valuations are far from stretched, at FY11F P/Es of 7.8-11.6x, or 20-46% below the market’s P/E of 14.5x. While most companies should see a breather after 40-50% EPS growth in 2009 spurred by pandemic fears, we expect a leg-up in structural demand growth, fuelled by recovery in the global economy, to support 9-26% EPS CAGRs over the next three years. For this growth story, P/Es of 7.8-11.6x for FY11F look compelling against the Malaysian market and other companies on Nomura’s BUY list. Malaysian players control 60-65% of global capacity and we see three- to fivemonth backlogs and high latex prices driving higher ASPs in 2010F. Sizeable long-term potential exists in the largely untapped Asian markets, which make up just 6-10% of global sales, while concerns on potential industry overcapacity in 2011F seem premature given the global economic recovery and potential restrictions in natural gas supply. We initiate coverage on Top Glove, Kossan and Supermax, the three largest listed glove makers in the world, with BUY ratings. Our top pick is Top Glove, whose diversified global customer base should support stable margins and for which we forecast a three-year EPS CAGR of 25.7%, implying an FY11F P/E of 11.6x.
Stocks for action
Our top pick is Top Glove given its consistent track record in delivering growth and continued market leadership. We are also positive across the sector.
Price Price target Rating (RM) (RM) BUY* 11.98 BUY* BUY* 6.16 7.38 15.16 8.74 9.51
Stock Top Glove (TOPG MK) Supermax (SUCB MK) Kossan Rubber Industries (KRI MK)
* Initiating coverage; prices as at 5 March close
HEALTHCARE & PHARMACEUTICALS
NOMURA SECURITIES MALAYSIA SDN BHD
Jacinda Loh Wai Kee Choong
+60 3 2027 6889 +60 3 2027 6893
jacinda.loh@nomura.com waikee.choong@nomura.com
NEW THEME
A N C H O R
R E P O R T
Another good stretch
Even after a good run for Malaysian rubber glove stocks over the past 12 months, we think valuations are far from stretched, at FY11F P/Es of 7.8-11.6x, or 20-46% below the market’s P/E of 14.5x. While most companies should see a breather after 40-50% EPS growth in 2009 spurred by pandemic fears, we expect a leg-up in structural demand growth, fuelled by recovery in the global economy, to support 9-26% EPS CAGRs over the next three years. For this growth story, P/Es of 7.8-11.6x for FY11F look compelling against the Malaysian market and other companies on Nomura’s BUY list. Malaysian players control 60-65% of global capacity and we see three- to fivemonth backlogs and high latex prices driving higher ASPs in 2010F. Sizeable long-term potential exists in the largely untapped Asian markets, which make up just 6-10% of global sales, while concerns on potential industry overcapacity in 2011F seem premature given the global economic recovery and potential restrictions in natural gas supply. We initiate coverage on Top Glove, Kossan and Supermax, the three largest listed glove makers in the world, with BUY ratings. Our top pick is Top Glove, whose diversified global customer base should support stable margins and for which we forecast a three-year EPS CAGR of 25.7%, implying an FY11F P/E of 11.6x.
Stocks for action
Our top pick is Top Glove given its consistent track record in delivering growth and continued market leadership. We are also positive across the sector.
Price Price target Rating (RM) (RM) BUY* 11.98 BUY* BUY* 6.16 7.38 15.16 8.74 9.51
Stock Top Glove (TOPG MK) Supermax (SUCB MK) Kossan Rubber Industries (KRI MK)
* Initiating coverage; prices as at 5 March close