ANALYSTS have a positive outlook on Rubberex Corp (M) Bhd’s share price given its undemanding valuations, potential upside and high dividend yields.
In a research note, SJ Securities Sdn Bhd said the stock was trading at a price-to-earnings (PE) ratio of 9.6 times for financial year ending December 2005, compared with the sector’s PE of 12 times.
The glove making company, whose plant is sited at the Bercham Industrial Estate in Perak, was likely to register improved revenue resulting from higher capacity and ready demand, the research house said. World demand for latex gloves is expected to grow at an average 10% annually to 80 billion pieces this year.
It noted that Rubberex was the third largest natural rubber and synthetic latex industrial and household glove maker in the world, trailing Australia’s Ansell and Mapa Group of France.
The company was expected to get a revenue boost from a seventh production line, due for completion by mid year, when capacity will increase to 150 million pairs of gloves a year from 100 million, SJ said.
For fiscal 2004, Rubberex reported a RM13.1mil pre-tax profit on sales of RM113.2mil.
SJ said the group’s production set-up was different from that of examination and surgical gloves manufacturers’ whereby its lines were shorter, handled a variety of products and used less powder. Thus, there was little difficulty in switching processes of product lines, it said.
Rubberex, which plans to enhance plant usage and production efficiencies from the current 80%, may also embark on a regional expansion to source for cheaper labour, it added.
According to SJ, the group, whose products are used as protective gear for household and general tasks, has distinguished itself from other players such as Top Glove Corp Bhd, Supermax Corp Bhd, APL Industries Bhd and Seal Polymer Industries Bhd which concentrate on examination and surgical gloves.
In addition, Rubberex’s chemical resistant industrial gloves are used in a wide range of industries as safety gear for workers. Its gloves, the result of its more sophisticated technology, were also able to command a higher margin as they were of higher value, it said.
In Malaysia, the company faced less competition, as there were only 10 manufacturers of significant size in the market, it added.
SJ said one of Rubberex’s key advantages was its high direct supermarket retail sales, which reduced layers of distribution channels, lowered costs for buyers and provided reasonable continuity of orders.
The glove maker, which has staff strength of 1,000, placed high importance on product branding. Although it produced gloves under its own brand name, it was a well-recognised original equipment manufacturer, the research house said.
It is also export-oriented, as 98% of its products are exported to more than 100 countries with substantial revenues coming from the United States and Britain.
Following the completion of its bonus issue of 16.1 million shares, Rubberex has met the minimum paid-up capital requirement of RM60mil for a listing on the Bursa Malaysia main board. Its proposed transfer to the main board was still pending the Securities Commission and Bursa Malaysia approvals, SJ said.
Over the past five years, the group has been declaring decent dividends, averaging yields of about 9% to 10%. For 2005, Rubberex was likely to maintain its dividend policy and to yield about 10%, it said.
Mayban Securities analyst Arsad Thinoon said the glove sector was “lucrative” as it was a growing market. The usage of gloves in developing and Third World countries was still low compared with developed nations like the United States and Britain, he said.
“Once countries like India and Africa increase their gloves demand, the global market is likely to see a boost,” he said.
Latex, which constitutes 55% of total operating expenditure, was plenty in Malaysia due to its consistent climate, Thinoon added.