Higher revenue seen for glove makers this year on virus outbreak

Among the glove makers, the research house said Top Glove’s earnings are the most sensitive to a 5% increase in utilisation rate from its larger production capacity, with 63.9 billion pieces per annum.

PETALING JAYA: Glove makers could see higher earnings this year, as demand for gloves ramp up on the back of the coronavirus outbreak in China.

CGS-CIMB in a report yesterday said channel checks with glove makers revealed that there was a ramp-up in demand for gloves, especially from China and its neighbouring countries.

“Based on our current forecasts, we estimate that glove makers under our coverage should record an average 14% increase in 2020 revenue, based on the assumption of global glove demand of between 8% and 9%.”The research house noted that global medical glove consumption rose by 17% in 2009 during the H1N1 outbreak.

“We estimate that every 5% increase in average utilisation rate of each glove maker could lead to a 6.8% to 10.1% upside in our 2020 to 2022 earnings per share forecasts, ” it said.

“This is assuming no margin expansion from higher economies of scale and higher average selling prices.”

With the coronavirus outbreak declared as a global emergency, CGS-CIMB said it expects higher healthcare awareness on a global basis.

“This should lead to more countries including the ones with low healthcare awareness stocking up on medical supplies including medical gloves (essential item used in the healthcare industry).

“This should bode well for Malaysian glove makers which supply up to 63% of global rubber glove demand in 2018.”

The research house said The Malaysian Rubber Glove Manufacturers Association had also highlighted that its members are ramping up their production to meet rising demand for gloves to contain the spread of the virus.

“This bodes wells for long-term glove demand from higher healthcare awareness on a global scale.”

CGS-CIMB said it is currently pegging all its glove stocks under coverage to plus-one standard deviation, above their five-year historical mean.

“In the past 10 years, we note that glove stocks’ valuations went plus-two standard deviation above their five-year historical mean during the H1N1 outbreak (2009 to 2010) and dollar to ringgit rally in 2005.”

Among the glove makers, the research house said Top Glove’s earnings are the most sensitive to a 5% increase in utilisation rate from its larger production capacity, with 63.9 billion pieces per annum.

“Kossan is the least sensitive given its limited production capacity with 26.5 billion pieces per annum, ” it said.