Glovemakers have been in the spotlight for the past month, as investors began to raise concerns on the various challenges faced by the sector. These include the risk of overcapacity, record-high latex prices, the appreciation of the ringgit and a potential cut in gas subsidies.
Several prominent glovemakers spoke to The Edge Financial Daily in the second week of August to explain their business and their continued confidence. Indeed, these concerns have yet to show up significantly in the latest round of quarterly earnings.
Strong June quarter earnings
For the recently ended June quarter, major glovemakers continued to report robust top-line and bottom-line growth.
Supermax Corp Bhd saw its net profit for the second quarter ended June 30, 2010, soaring 77.9% to RM45.85 million from RM25.78 million a year earlier, due to revenue growth as well as cost savings from better efficiency and productivity resulting from improved processes and refurbished lines.
Revenue for the period rose 24.6% to RM234.8 million from RM188.48 million, which the company said was due to strong global demand for rubber gloves as well as higher selling prices.
Kossan Rubber Industries Bhd saw its net profit for the second quarter ended June 30, surging 123.5% to RM30 million from RM13.4 million a year earlier, while revenue jumped 30.4% to RM256.5 million from RM196.8 million.
“The higher turnover is due to higher volume of gloves sold. The increase in pre-tax profit is attributed to better product mix and margin,” Kossan said in its filing. Second-quarter pre-tax profit grew 116.3% to RM36.3 million from RM16.8 million.
Smaller-sized Rubberex Corp (M) Bhd however saw its net profit drop 31.1% to RM2.01 million for the second quarter ended June 30, compared with RM2.91 million in the same period a year earlier.
Its pre-tax profit in the second quarter halved to RM3 million from RM6 million a year earlier, while turnover grew 17% to RM85.8 million from RM73.5 million.
“The decrease in profit was due to the persistently high raw material costs and strengthening of the ringgit against major trading currencies such as the US dollar and euro,” said Rubberex in the notes to its results.
Major glovemakers who posted their quarterly results in early August include Hartalega Holdings Bhd and Latexx Partners Bhd, both showing strong earnings growth.
Hartalega reported a 57.2% jump in net profit to RM41.5 million on revenue growth of 35.6% to RM170 million for its first quarter ended June 30, 2010 while Latexx recorded an 88.9% jump in net profit to RM21.6 million on revenue that grew 80.7% to RM134.5 million.
Top Glove Corporation Bhd and Adventa Bhd reported their results in June. Both their results remained strong.
For its third quarter ended May 31, Top Glove reported a 52.9% surge in net profit to RM64.5 million, as revenue grew 49.4% to RM555.9 million. For the second quarter ended April 30, Adventa posted a 70.2% rise in net profit to RM6.45 million on the back of a 20.6% revenue growth to RM81.1 million.
But investors still cautious
Despite the strong results and the rash of positive analyst reports reaffirming their confidence in the sector, investors’ interest remained ambivalent. There was little positive reaction to the results. In fact, many stocks continued to slide — notably Supermax, which is now trading near a six-month low.
The concerns facing the sector could show up in the coming quarters, says an analyst. This is especially true if rising capacity is not well absorbed, as fears over the H1N1 virus have subsided.
More likely than not, the industry concerns could have also been used by investors as an excuse to lock in gains. After all, the shares of glovemakers have rallied over the past 12 months. Supermax has risen 132.4% while Adventa, one of the lowest share price performers of the larger glovemakers, is up 34.7% over the same period.
In quiet trading yesterday with total volume of only 743.7 million shares, Top Glove ended two sen or 0.33% higher at RM6, Supermax traded unchanged at RM4.97, Kossan slid six sen or 1.79% to RM3.29, Hartalega inched up one sen or 0.2% to RM5.03, Latexx Partners gained two sen or 0.66% to RM3.05 while Adventa remained unchanged at RM2.37. Rubberex slid 0.5 sen or 0.56% to 88 sen.
A senior chartist said yesterday’s price movement was not considered significant due to the smaller trading volume on Bursa Malaysia.
He added that the rubber glove sector was basically consolidating like the rest of the market.
“The market is consolidating ahead of the Hari Raya holidays, with a possible rebound for the rubber glove sector after the festive break,” he said.
This article appeared in The Edge Financial Daily, September 7 2010.
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