KUALA LUMPUR: AmResearch reaffirmed its underweight recommendation on the glove makers and following its company visits, it believes a share price de-rating may be imminent.
In its research report issued on Wednesday, Aug 11 it said demand growth has peaked and continues to decelerate. There is also further contraction in order lead time from 50 days to 40 days compared with 80 days to 90 days during the AH1N1 outbreak.
AmResearch said there was also overcapacity with supply glut of 3 to 6 billion pieces of gloves over 2011-12, or up to +4% if demand falls below 10% per annum.
It added there was growing margin risk on persistently strong headwinds. The factors were risks of cost-pass through of over 90% during the height of A(H1N1) falling below the typical 70%-80% threshold.
'We re-affirm our UNDERWEIGHT stance on the sector, as underlying industry dynamics remain disapproving. Reiterate HOLD on Top Glove with unchanged fair value of RM6.25/share based on target PE of CY11F earnings, HOLD on Kossan with unchanged fair value of RM3.82/share based on target PE of 11x FY10F earnings,' it said.
In its research report issued on Wednesday, Aug 11 it said demand growth has peaked and continues to decelerate. There is also further contraction in order lead time from 50 days to 40 days compared with 80 days to 90 days during the AH1N1 outbreak.
AmResearch said there was also overcapacity with supply glut of 3 to 6 billion pieces of gloves over 2011-12, or up to +4% if demand falls below 10% per annum.
It added there was growing margin risk on persistently strong headwinds. The factors were risks of cost-pass through of over 90% during the height of A(H1N1) falling below the typical 70%-80% threshold.
'We re-affirm our UNDERWEIGHT stance on the sector, as underlying industry dynamics remain disapproving. Reiterate HOLD on Top Glove with unchanged fair value of RM6.25/share based on target PE of CY11F earnings, HOLD on Kossan with unchanged fair value of RM3.82/share based on target PE of 11x FY10F earnings,' it said.
No comments:
Post a Comment