PETALING JAYA: Glove maker Rubberex Corp Bhd is expected to experience supernormal earnings growth for the next three years, given its aggressive, but timely expansion of its nitrile disposable glove segment.
According to RHB Investment Research, Rubberex is the most direct beneficiary of the Covid-19 outbreak, as nitrile disposable gloves are sold mainly to the medical sector.
Due to the exceptionally high demand, Rubberex’s operations facility is running at close to the full utilisation rate of 90%, compared with its normal level of 80%-90% before the pandemic, said the research unit in its latest report.
RHB Research pointed out that the company also plans to double its capacity from one billion pieces per annum (ppa) to two billion ppa in the next three to six months.
“We gather that the construction of the new plant, which has a one billion ppa capacity, is already 90% completed.
“However, construction has been temporarily halted due to the movement control order (MCO), ” added the research unit.
Having said that, it should only take a maximum of three months to complete the construction once the MCO is lifted.
For financial year 2021 (FY21)-FY22, RHB Research expects the company to expand by another 500 million ppa annually to reach three billion ppa by end-FY22.
Effectively, Rubberex is expected to triple its production capacity within the next three years.
This is given that the demand for nitrile disposable gloves is strong, and the order for the upcoming one billion ppa capacity has already been fully taken up.
RHB Research, which has initiated a buy call on Rubberex, described the company as a small-cap stock with promising growth.
It also expects a three-year compounded annual growth rate (CAGR) earnings growth of 30%.
For FY20, the research unit has projected Rubberex’s earnings to grow 35% year-on-year to RM15mil.
This is supported by a higher sales volume from its existing capacity, as well as contribution from the new plant from fourth-quarter 2020 onwards.
Besides that, RHB Research expects margins to expand due to the stronger US dollar-ringgit exchange rate and declining raw material prices.
Rubberex’s market capitalisation of about RM325mil is small as compared to its peers, which range from RM3.2bil to RM25.6bil.
Despite the stock’s smaller liquidity versus the bigger boys, the research house noted that the company has much stronger earnings growth potential due to its small base.