Glove Sector

TOPGLOV reported earnings results for the first quarter ended 30/11/09.Its net profit almost doubled to MYR 66.5 m on cost saving measures and aggressive marketing strategies. With installed capacity of 31.5 b pieces of gloves a year, the company continues to build on its size. Factory 20, which is located in Klang, Malaysia, has commenced the installation of 16 new and advanced glove production lines and is targeted to be completed by February 2010. As for Factory 21, it is being built and is expected to start operation towards the end of 2010.

KOSSAN got the 2nd highest revenue in the industry with RM855.1m. However, its average net profit margin 6.8% is poor.Means that for them to growth bottom line, they need to produce and sell more glove. Consensus for FY09 suggest that is EPS will grow RM0.06 to RM0.42. Therefore, more upside for its share price with target RM5.90 (based on Consensus x current P/E).

SUPERMX net profit up quater to qauter for the last 4 quater. Revenue keeps ascending from 284.7m(FY 06) to 811.8m(FY09). Surging global glove demand, fuelled by the influenza A (H1N1) pandemic will keep pushing its revenue, where global glove demand increase steadily at 8%~10% a year.By focusing to higher margin products and lowered operating costs, its net profit margin stay at average of 11% for TTM. P/E of 12.6x is the most attractive among the others. Price-to-book of 2.1x also suggest that the price is fair. The company, which has a policy of returning 20% of net profit to shareholders, aims to improve this in 2010. It will return whatever it makes above its recently revised net profit target of RM 117 m. Means RM10m will be return to shareholder if the company posts RM127 m in net profit, RM 10 m will be returned to shareholders. The special dividend will include extraordinary gains, which estimates at about RM15 m currently. Annual Revenue is expected to reach RM1.5b by FY11, currently the company keeps increase its production capacity by replace or build new production lines.

HARTA announced earnings results for the second quarter ended 30/9/09. The company reported pre-taxprofit of RM 41 m, some 92% higher than the same period of last year. Revenue for the quarter was higher at RM 135 m compared with RM 111 m previously. Net assets per share increased to 122 sen as at the end of the quarter. However, its price-to-book 5.3x is still highest among others. Pro side shows HARTA is most profitable with its net margin of 22.37%

LATEXX stands out to me this FY, where its revenue and net profit keeps improving. TTM, its net profit is RM41.4m, only RM16m less then KOSSAN. Consider its revenue is only RM295m, i think this company is a rising star. Net profit margin of 14% shows me that they run efficiently, 27% ROE also support this. Estimate EPS of RM0.06 for the next quater should be achievable. That would bring FY09 EPS to RM0.24, P/E 12x which is attractive to me. To be save current ratio still need to be watch closely, where it is my only concern.

ADVENTA due to announce Result quater ending 30/10/09. After positive result from other glove maker, i expect ADVENTA to give us some good news too. With current P/E of 23.6x, it is overprice. Or this indicate another excellent result from them? How good is good? Using average P/E of 18x for glove maker, i expect EPS of RM0.16(ttm). Which means the 30/10/09 EPS has to be RM0.08. Any less then that would be consider a SELL.

For a conclusion, glove sector is the stock to pick in current economy situation. I do fancy SUPERMX and LATEXX as my top pick.