#Hot Stocks* Top Glove, Supermax, Hartalega gain, after recent falls

KUALA LUMPUR (Dec 17): The rubber glove sector saw gains this morning, led by Top Glove Corp Bhd, which rose as high as RM5.74, as investors bargain-hunted for value stocks.

Last week saw some profit taking which brought share prices of rubber glove counters down, analysts said.

"Investors are looking for a safe haven," said Ian Wan, an analyst with Alliance Research. He added that the rubber glove sector is now becoming a good alternative compared to defensive counters like consumer stocks.

At noon break, Top Glove rose 9 sen or 1.6% to RM5.66 with some 189,000 share done among the morning's top ten gainers.

Last Thursday, Top Glove reported an 83% rise in first quarter net profit from a year earlier as higher turnover and lower raw material prices boosted its bottom line.

The rubber glove producer said net profit came to RM57.49 million in the first quarter ended Nov 30 (1QFY13) against RM31.43 million a year earlier, as revenue climbed 5% to RM584.58 million from RM554.84 million.

However in the day after its results were announced, Top Glove shares dipped as much as 3.14% on profit taking.

Hartalega Holdings Bhd was also among today's top gainers, rising 8 sen or 1.6% to RM4.93 at 12.29 pm with some 48,600 shares done after peaking at  RM5.67 earlier.

Supermax Corp Bhd rose 2 sen or 1% to RM1.98, with 163,600 shares traded.

Fundamentally, the rubber glove sector's outlook remains positive, OSK Research's Jerry Lee told theedgemalaysia.com.

"Earnings are still good while raw material prices have come down, allowing these companies to maintain healthy margins," Lee said.

While the ringgit has strengthened against the US dollar, Alliance's Wan sees limited upside for the ringgit which bodes well for the sector.

The sector supplies 85% of gloves to the world and its exports income is in the form of dollars. Hence, a weak ringgit will mean higher earnings in the local currency for the companies.

"There has been much profit taking ahead of the 13th general election," Wan noted. But going forward, everything looks good for the sector, thus we see a run up, he said.

In a report earlier this month, Wan had said, "Unlike many defensive sectors such as telco, consumer and REIT sectors which have run up significantly in 2012 with rich valuation now, valuation of the glove sector remains undemanding".

Both Top Glove and Hartalega are currently trading at price-earnings ratios (PER) of about 15 times, while Supermax and Kossan Rubber Industries have PER less than 10 times.

"It doesn't make sense for second tier makers to continue being discounted whereas the sector is turning toward an up-cycle," explained Wan, forecasting a re-rating for both Supermax and Kossan next year.

Alliance Research has a "trading buy" call on Supermax with a target price (TP) of RM2.29, and a "buy" call on Kossan at a RM4.09 TP.

Kossan shares saw no movement this morning, remaining at RM3.29.

Nevertheless, both Alliance and Maybank IB Research have Kossan as their top pick for the sector, with Maybank suggesting the stock as a "laggard play and  value buy".

Wan said that on a performance basis Alliance saw little further upside on Top Glove and Hartalega.

While Top Glove has a "neutral" call, Alliance placed a "trading buy" call on Hartalega for its ambitious expansion plans.

OSK's Lee however cautions that Hartalega may soon face the risk of more intense price competition in 2H13 in the nitrile glove segment as Top Glove and Supermax beef up their production of nitrile gloves.

Lee expects another 7% or so upside for Hartalega.

He said Top Glove can expect between 10% to 12% upside.

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