Glovemakers shares up on rising demand

OSK Research has an 'overweight' rating on the sector, raising its target prices on some rubber glove stocks

SHARES of rubber glove companies are on a roll right now and will continue to move up, riding on the global outbreak of influenza A (H1N1).

OSK Research Sdn Bhd has an "overweight" rating on the sector, raising its target prices on some rubber glove stocks, in line with recent developments in the industry's spurring demand for rubber gloves.

The local research house organised plant tours to four rubber glove companies last month, namely Top Glove Corp Bhd (7113), Supermax Corp Bhd, Kossan Rubber Industries Bhd and Hartalega Holdings Bhd.

"For Top Glove, we recommend a buy with a target price of RM8.50 from RM7.40 previously and Supermax, also a buy with a target price of RM3.85 from RM2.69 previously," it said in a report yesterday.
"We are also recommending a buy on Kossan, with a target price of RM4.98 from RM4.48 previously as well as on Adventa, with a target price of RM1.87 from RM1.31 before," it added.

While it has revised its target price upwards to RM5.45 from RM4.10 for Hartalega, the research house has downgraded its call to "neutral" from "buy" previously, given that Hartalega's share price has caught up with the valuation.

OSK Research said demand for rubber gloves from the medical industry remains strong, especially from developing countries.

"But glove supply is still short. Since the H1N1 outbreak has been raised to a pandemic level, the governments of developed countries like the US and Europe have urged all healthcare multinational corps to stock up on rubber gloves, which has created short-term demand.

"Over the longer term, demand is expected to come from developing countries like China, India and Russia, which are gradually increasing their use of gloves," it said.

Also, with the US tightening its Food and Drug Administration regulations effective December 2008, the number of glove defects per batch would need to be reduced to qualify for entry to the US market.

This would reduce the supply of rubber glove exports to the US due to the retention of "unqualified"' gloves at the ports and hence create new sales opportunities for the established rubber glove manufacturers, said OSK Research.