Rubber Gloves – Malaysia - CGS-CIMB Research 2020-11-06: In The Time Of Need, Help Arrives


Rubber Gloves – Malaysia - In The Time Of Need, Help Arrives

  • In Malaysia Budget 2021 announced on 6 Nov, Top Glove (SGX:BVA), Hartalega, Supermax and Kossan committed to contribute a total of RM400m to fight COVID-19.
  • We assume this as one-off non-recurring contribution, and will not affect our core EPS estimates for the companies.
  • Reiterate Overweight, with Hartalega and Top Glove as our top picks.

4 glove makers to contribute RM400m to combat COVID-19

  • In Budget 2021, the Malaysian government announced that four major glove companies, namely Top Glove, Hartalega, Supermax and Kossan have committed to contribute up to RM400m to aid in combating COVID-19 in the country.
  • This contribution will mainly be used to partially cover the cost of COVID-19 vaccines as well as the purchase of relevant medical equipment.

Strong support by all glove makers

  • Based on our channel checks, Top Glove and Hartalega have committed to contribute RM185m (1.8% of our FY8/21F net profit forecast) and RM90m (3.5% of our FY3/21F net profit forecast) respectively.
  • This is followed by Supermax at RM75m (2.3% of our FY3/21F net profit forecast) and Kossan at RM50m (7.2% of our FY12/20F EPS forecast).

Assuming this as a one-off contribution, no impact on our core EPS

  • We believe that this is a one-off contribution from all four glove companies, which we will consider as a non-recurring item. Hence, this will not affect our FY20-23 core EPS forecasts for the companies.

No news on windfall tax is good news

  • In Budget 2021, the government did not mention any plans to implement windfall tax on glove makers. We view this positively, as this this will alleviate investors’ concern on this matter. Also, we believe that this minimises the risks of glove makers opting to expand overseas, as a result of a tougher business environment locally.
  • To recap, there were growing concerns that the government could announce the implementation of some sort of windfall tax on glove companies in Budget 2021. This is in view of the recent ‘supernormal’ profits enjoyed by the glove sector, given the surge in both demand and average selling prices of gloves due to the COVID-19 pandemic.

Reiterate Overweight

  • We make no changes to our Overweight call on the glove sector. While our top picks in the sector are currently Hartalega and Top Glove, we also have ADD calls on Supermax and Kossan. We continue to like the sector, given the sector’s strong earnings prospects as it is a key beneficiary of the robust global glove demand owing to COVID-19.
  • Re-rating catalysts: a surge in average selling prices and stronger-than-expected global glove demand.
  • Downside risks: implementation of windfall tax on glove companies and a sharp decline in ASPs.

Walter AW CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-06
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