OSK Research downgrades glove sector to Neutral

OSK Research said the rubber glove sector has been experiencing normalising demand since the start of 2H10 when the H1N1 pandemic lost its influence as a factor driving demand growth and as new capacity started to flood the market.

It said on Tuesday, Sept 21 that as rubber glove manufacturers were unable to pass on to their customers all additional cost increases arising from higher latex prices and an unfavorable USD-ringgit exchange rate, most saw their margins as well as absolute bottom lines being compressed.

“In light of these developments, we are downgrading the sector to Neutral from Overweight,” OSK Research said.

OSK Research said it believed the 3Q and 4Q results of most rubber glove companies would at best be flat q-o-q, if not experiencing a drop, given the negative effects arising from normalising demand for examination gloves.

“We think there is a possibility that 3Q would be the worst quarter this year and see most of glove makers recovering in 4Q, during which we expect more aggressive stocking up of examination gloves just before the start of the wintering season of rubber trees in early 1H11, which will again drive up latex prices and in turn, the selling prices of gloves,” it said.

The research house said unless there is a surge in examination glove demand fuelled possibly by a new health pandemic or major healthcare reform, it forecast a flat 2011.