Kenanga Research
KUALA LUMPUR: Kenanga Research is retaining its underweight call on rubber gloves due to the rich price-to-earnings ratio (PER) valuations and flat sequential earnings growth.
It said on Friday the rubber gloves stocks’ share price rally was led largely by massive PER expansion as earnings growth has been pedestrian over the past eight quarters.
“Our analysis suggests that the strong surge in share prices of glove stocks was mainly due to changes in the PER multiple and not so much on earnings growth.
“Following a period of capacity consolidation starting back in mid-year 2016, which led to falling average selling prices (ASPs), glove makers are ramping up capacities,” it said.
Kenanga Research’s analysis suggests potential oversupply is looming. Note that previous two oversupply occurs back in 2014 and 2016. On the flipside, key upside risk is stronger-than-expected demand.
It has underperform calls on Hartalega
(UP; TP: RM5.15); Top Glove (UP; TP: RM8.85); Kossan (UP; TP: RM3.45) and Supermax (UP; TP: RM2.60).
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