Demand for rubber gloves to stay elevated

KUALA LUMPUR: Kenanga Research expects demand for rubber gloves to remain resilient with the vaccine potentially taking years before it will reduce the spread of Covid-19 infection.

"To reduce the spread of Covid-19 infection, vaccine coverage has to reach 60-70% to achieve some degree of herd immunity," said Kenanga.

Meanwhile, the spread of the new strain of fast-spreading coronavirus further casts doubt that the pandemic situation will be resolved soon.

It added that scaling up production of vaccines and distribution could pose a challenge, which means the pandemic is likely to remain in 2021.

The research house said earnings growth in 1Q21 and lead times of over 365 days indicated demand will stay resilient given that buyers are unlikely to put down deposits if they expected demand to ease soon.

In addition, the temporary production disruption experienced by some glove makers could potentially exacerbate a supply shortage.

"Based on our sensitivity analysis, assuming ASP normalizes to UD35/1,000 pieces and hence with PER valuation tracking back to pre-COVID 5-year historical forward mean, current glove makers’ share prices are indicating potential upside from here.

"Note that current latex and nitrile ASP average USD50 and USD90 to USD110, respectively and expected to be higher in 1Q CY21," said Kenanga.

It has a an "outperform" recommendation on Hartalega, its top sector pick with a target price of RM21.

It also has an "outperform" on Top Glove with a target price of RM8.50.
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