KENANGA RESEARCH

03 July 2013

Sector Update

Rubber Gloves
Positive indicators moving into 3QCY13
We are maintaining an OVERWEIGHT rating on the rubber gloves sector. The recently concluded 1QCY13 results season was within our expectations, with four of the stocks under our coverage coming in generally within ours and the consensus expectations. Sales volume grew YoY across all the companies led by Kossan. Looking at the 1QCY13 results, Kossan and Hartalega Holdings were the most resilient in combating the effect of the minimum wage policy implemented on 1 Jan 2013. Top Glove and Supermax were more impacted due to their difficulties in fully passing the cost through in a challenging latex-based market. However, signs favouring the sector are plenty. Moving into 3QCY13, we expect the sector to remain resilient underpinned by: i) the overall resilient demand for rubber gloves, led by latex gloves, although nitrile gloves, which have consistently been taking up the formers market share, will continue to show better growth prospects; ii) the weakening of the Ringgit against the US dollar, which is positive to rubber glove players and iii) the sustained low raw material price. Our TOP PICK for the sector is Kossan with an OUTPERFORM and a higher TP of RM6.20 (RM4.88 previously) based on 14x FY14 EPS which is 15% discount to Top Glove and Hartalegas average target Fwd PER; we think the narrower valuation gap between Kossan and the other two players are warranted as it will be seeing its highest ever net profit in 2013 and unprecedented earnings growth underpin by capacity expansion over the next two years, is seeing improving dividend payouts as well as being able to pass on cost efficiently. We have OUTPERFORM calls for HARTA (TP: RM7.10) and SUPERMX (TP: RM2.39) but MARKET PERFORM on TOPGLOV (TP: RM6.36). Solid 1QCY13 demand and results which were largely within expectations. All four rubber glove stocks that we cover reported 1QCY13 results that came in within ours and the market expectations. Sales volume largely grew YoY across all the companies led by Kossan (23% YoY, +2% QoQ), Hartalega (+16.9% YoY, +2.3% QoQ), Supermax (+8.1% YoY, +0.2% QoQ) and Top Glove (+17% YoY, +7% QoQ) due to capacity expansions as well as higher demands fuelled by lower ASPs due to the easing raw material prices. Mixed fortunes from minimum wage to the glove players margins. Interestingly, margins for Kossan and Hartalega remained the most resilient, which demonstrated their ability to pass cost through to counter the higher cost from the minimum wage. However, Top Glove and Supermax appeared to be affected by the minimum wage policy. Supermax registered a weaker 1QFY13 PBT margin of 11.5% compared to 12.6% in 4QFY12. Similarly, Top Glove Corporation recently released 3QFY Aug 13 (Mar 2013 till May 2013) results that was hit by an increase in its salary cost due to the effect of the minimum wage and the inability to fully pass the cost through due to the challenging latex-based gloves segment, which accounted for 73% of its production capacity. Going forward, we believe both Supermax and Top Glove will have to largely rely on higher volume sales and efficiency improvement via their automated production lines to counter the effects of the higher wages from the minimum wage policy in the face of a challenging price environment in the latexbased gloves segment. No major worries on the potential high energy costs going forward. Looking ahead, we believe that rubber glove players may face higher production costs emanating from the high energy prices. Effective Jun 2011, the government has raised the gas price by 7% to RM16.07 per mmbtu from RM15 per mmbtu. There will be a subsequent 8-19% price increase every 6 months until 2015. However, the dateline for the last review in December 2011 has passed and yet to be effected. At the same time in 2011, the electricity tariff rate was raised by 8-10%. The hike in energy prices was expected, in line with the Governments subsidy rationalisation programme. We are not overly concerned on any potential hike in gas price since energy cost makes up only 8-9% of the production cost. Weakening of Ringgit vs. US dollar is a positive for rubber glove players. Generally, a weakening Ringgit is positive for glove makers. Since sales are USD denominated, theoretically, a depreciating ringgit against the dollar will lead to more revenue receipts for glove makers. The ringgit has weakened by 6% to RM3.16 from an average of RM2.99 against the dollar over the past several weeks. Ceteris paribus, a 1% depreciation of RM against USD will lead to an average 1%-2% increase in the net profit of rubber glove players. Demand for gloves still intact, nitrile gloves continue to lead. We believe that the average 10% demand p.a. for rubber gloves over the next few years is still intact. In 2012, the total exports of rubber gloves, synthetic rubber (SR) and natural rubber (NR) combined rose 14.9% YoY to 40.7b pairs and 3.6% to RM9.8b in value. In 2012, Malaysia exported 18.6 billion pairs of SR gloves or an increase of 26% YoY. The overall demand is expected to continue to be led by NR gloves, although SR gloves had consistently been taking up the formers market share. While latex-based gloves or NR gloves are still dominant (as a percentage to the overall exports of rubber gloves) in Malaysia, the trend is moving towards SR gloves. This was evident from the lower NR:SR sales value ratio of 61:39 in 2011 to 57:43 in 2012, and the sales volume ratio of 58:42 in 2011 compared to 54:46 in 2012.

OVERWEIGHT

The Research Team research@kenanga.com.my Tel: 603-2713 2292

PP7004/02/2013(031762)

KENANGA RESEARCH

Rubber Gloves

03 July 2013

KEY POINTS Solid 1QCY13 demand and results were largely within expectations. All four rubber glove stocks that we cover reported 1QCY13 results that came in within ours and the market expectations. Sales volume largely grew YoY across all the companies led by Kossan (23% YoY; +2% QoQ), Hartalega (+16.9% YoY; +2.3% QoQ), Supermax (+8.1% YoY; +0.2% QoQ) and Top Glove (+17% YoY; +7% QoQ) due to capacity expansions as well as higher demands fueled by the lower ASPs due to the easing input of raw material prices. 1QCY13 results roundup Part 1 of 2
Company Kossan Rubber Industries Rating Outperform Vs Kenanga In Line Vs Consensus In Line Kenanga's results comments/observations QoQ, the 1QFY13 revenue came in at RM327m (+2.7%) driven largely by its rubber gloves division (+3.0%) as volume sales grew 2% with its new capacity expansion taken up. Sequentially, the 1QFY13 net profit came in at RM33.2m (+12% QoQ) due to a higher pre-tax profit contribution from the gloves division (+19.7%) and a lower effective tax rate, which more than offset the lower contribution from the technical rubber product (TRP) division (-36.7%). The EBITDA margin expanded slightly at 18.1% compared to 17.0% in 4QFY12 despite the implementation of the minimum wage policy. This meant that Kossan was able to pass the higher cost through, which mitigated the effect of the minimum wage policy. However, in the TRP division, the PBT margin here fell to 12% QoQ from 19% as some jobs had already been contracted prior to the implementation of the minimum wage policy and involved a longer contracted period where the higher cost was not able to be passed on immediately. YoY, the groups 1QFY13 revenue rose 13% to RM1.2b contributed by: (i) its technical rubber products division (+6.0%) and (ii) its gloves division (+13.9%) due largely to a higher sales volume (+23%), which more than offset the lower ASPs made. Net profit grew faster than the turnover growth due to margins expansion as a result of the 18% decrease in the average latex input price. Hartalega Holdings Outperform In Line In Line The 12MFY13 net profit of RM235m came in within expectations at 98% of ours and the consensus full year net profit forecasts. 12MFY13 revenue and net profit jumped 11% and 16% respectively due to: 1) a higher utilisation rate of 90% compared to 83% in FY12; 2) higher sales volume (+21%) due to the new capacity expansion from Plant 6 and 3) an easing in the raw material prices. QoQ, the 4QFY13 revenue rose 1.8% Q-o-Q due to a higher sales volume (+3%) in the nitrile glove segment, which accounted for 94% of the sales. Nitrile glove ASPs in 4QFY13 were flat at an average of RM98 per 1,000 pieces (3QFY12 RM98.50 per 1,000 pieces). During the quarter, the utilisation rate rose to 92% compared to 90.6% in 3QFY13 due to the commercial production of two lines from Plant 6. The EBITDA margin remained stable at 33.7% compared to 33.3% in 3QFY13 due to its highly automated production processes model, hence leading to a solid improvement in its production capacity and a reduction in costs and allowing it to post better margins when compared to its peers. A third single tier interim dividend of 3.5 sen per share was declared. This brings its 12MFY13 total dividend to 10.5 sen per share. However, we believe a fourth or final dividend is expected to be declared in 3QCY13. Supermax Corporation Outperform In Line In Line QoQ, 1QFY13 revenue came in flat at RM320m as the volume sales was offset by the lower average selling price (ASP) of nitrile gloves due to competitive pressure. However, the PBT fell 13% as it was hit by the higher minimum wage policy, where the higher cost was not able to be fully passed on to its customers. As a result, the PBT margin fell 1.7%ppts to 11.5% from 13.1% in 4QFY12. Typically, customers are given a time of two to three months before new ASPs take effect. As such, we are not overly concerned of further margin erosions as an estimated 3-5% increase in the ASPs, which was informed to customers in Jan 2013, will take effect from the second quarter onwards. YoY, the 1QFY13 revenue rose 29% on the back of new capacity from the new and refurbished lines from Lot 6070. The pre-tax profit rose 19.7% due to the stable input raw material cost, which more than offset the slight margin erosion arising from the minimum wage policy.

Source : Company, Kenanga Research

Page 2 of 10

KENANGA RESEARCH

Rubber Gloves

03 July 2013

1QCY13 results roundup Part 2 of 2

Company Top Glove Corporation Rating Market Perform Vs Kenanga In Line Vs Consensus Below Kenanga's results comments/observations YoY, the 3QFY13 revenue rose 0.1% to RM604m due to higher volume sales (+17%) but this was negated by a lower average selling price (ASP) (-15%). The EBITDA margin fell 3 ppts to 10% from 13% in 3QFY12 as it was hit by the minimum wage policy as well as the recognition of RM10.9m unrealised losses from its US Dollar (USD) foreign exchange forward contracts and Australian Dollar (AUD) fixed income investments despite the lower raw material prices. The lower EBITDA margins was further exacerbated by the downward ASP pressure from latex-based gloves due to the weaker-than-expected demand. Judging from this quarters results and as per the details from the conference call, Top Glove is finding difficulty to raise its ASPs in the challenging latex-based gloves market. As such, it had to rely heavily on higher volume sales and efficiency improvement via its automated production lines to counter the effects of higher wages from the minimum wage policy going forward.

Source : Company, Kenanga Research

Mixed fortunes from minimum wage to glove players margins. Interestingly, the margins of Kossan and Hartalega have been resilient, which demonstrated their ability to pass the cost through to counter the higher cost from the minimum wage. However, Top Glove and Supermax appeared to be affected by the minimum wage policy. Supermax registered a weaker 1QFY13 PBT margin of 11.5% compared to 12.6% in 4QFY12. Similarly, Top Glove Corporation, which reported its 2QFY13 (Dec 2012 till Feb 2013) results last month, was hit by a RM8m increase in salaries due to the effect of the minimum wage. Typically, customers are given a time of two to three months lead time to when new ASPs take effect. As such, we are not overly concerned of further margin erosions given an estimated 3-5% increase in the ASPs; this was made known to customers in Jan 2013 and will take effect from the second quarter onwards. We expect higher volume sales as well as gradual implementation of automation to mitigate the effects of minimum wage in subsequent quarters. Recall that we had previously highlighted that the rubber glove players would be raising their ASPs by 3-5% to counter the effect of the minimum wage policy. In addition, these players have invested in the automation and computerisation of their manufacturing processes and have gradually reduced their reliance on manual workers to further minimise the adverse effect of the minimum wage policy. Some of the automations put in place include the: (i) automated mechanical stripping system (removing gloves off hand moulds) and (iii) glove puller and stacker system. The benefits from automation will however take some time to flow through to mitigate the effects of the minimum wage policy. Not to worried about potential high energy costs going forward. Looking ahead, we believe rubber glove players may face higher production costs emanating from high energy prices. Effective Jun 2011, the government has raised gas price by 7% to RM16.07 per mmbtu from RM15 per mmbtu. There will be a subsequent 8-19% price increase every 6 months until 2015. However, the dateline for the last review in December 2011 has passed and yet to be effected. At the same time in 2011, the electricity tariff rate was raised by 8-10%. The hike in energy prices was expected, in line with the Governments subsidy rationalization programme. We are not overly concerned on any potential hike in gas price since energy cost makes up 8-9% of production costs. Demand for gloves still intact, nitrile gloves continue to lead. We believe that the average 10% demand p.a. for rubber gloves over the next few years is still intact. In 2012, the total exports of rubber gloves, synthetic rubber (SR) and natural rubber (NR) combined rose 14.9% YoY to 40.7b pairs and 3.6% to RM9.8b in value. In 2012, Malaysia exported 18.6 billion pairs of SR gloves or an increase of 26% YoY. The overall demand is expected to continue to be led by NR gloves although SR gloves had consistently been taking up the formers market share. While latex-based gloves or NR gloves are still dominant (as a percentage to the overall exports of rubber gloves) in Malaysia, the trend is moving towards SR gloves. This was evident from the lower NR to SR sales value ratio of 61:39 in 2011 to 57:43 in 2012, and the sales volume ratio of 58:42 in 2011 as compared to 54:46 in 2012. The quantity of NR gloves exported in 2012 rose 7% to 22.2n pairs YoY due to the low cost of the raw material input. The demand and strong double-digit growth rate of gloves are expected to continue driven by nitrile gloves. We also expect latex-based gloves to continue to register positive volume sales as well due to the stable latex price.

Page 3 of 10

KENANGA RESEARCH

Rubber Gloves

03 July 2013

Table 1 :Declining trend in latex but nitrile gloves gaining further momentum in 2012 Destination 2009 (million pairs) NR SR 8,042 6,321 3,151 1,952 1,294 1,050 810 580 743 929 190 311 1 25,374 78 1,513 4,668 72 440 40 35 16 51 104 330 2 14 19 7,304 22 2010 (million pairs) NR SR 8,526 5,778 3,054 1,866 1,488 1,080 954 628 628 959 273 314 2 25,550 69 2,449 6,891 90 997 79 55 33 65 209 556 6 30 35 11,495 31 2011 (million pairs) NR SR 6,351 3,640 2,868 1,612 1,292 1,152 958 564 562 821 481 289 4 20,594 58 4,437 7,620 173 1,315 134 86 73 178 236 471 22 46 32 14,823 42 2012 (million pairs) NR SR 5,865 3,446 3,106 1,883 1,662 1,328 1,516 811 574 890 487 514 0 22,082 54 5,352 9,649 175 1,701 244 147 65 154 333 618 24 127 35 18,624 46 2012 vs 2011 % NR chg (7.7) (5.3) 8.3 16.8 28.6 15.3 58.2 43.8 2.1 8.4 1.2 77.9 (90.0) 7.2 % SR chg 20.6 26.6 1.2 29.4 82.1 70.9 (11.0) (13.5) 41.1 31.2 9.1 176.1 9.4 25.6

EU USA South America East Asia Non-EU countries West Asia Africa ASEAN Oceania North America South Asia CIS Countries Other Total Ratio as % of total (NR : SR)

NR natural rubber (latex based)

SR synthetic rubber (nitrile)

Source: Kenanga Research, Malaysian Rubber Export Promotion Council (MREPC), various
Top ten destinations for NR in 2011 in volume sales
US 18%

Top ten destinations for NR in 2012 in volume sales

US 16%

Germany 5%
others 43% Germany 6% Japan 4% UK 4% Brazil 8% France 3%

Japan 3% others 49% UK 3% Brazil 7% France 3% Turkey 7% Italy 4%

Belgium Turkey 1% A ustralia 6% 2%

Italy 5%

Belgium Australia 1% 2%

Source: Kenanga Research, Malaysian Rubber Export Promotion Council (MREPC) , various
Top ten destinations for SR in 2011 in volume sales
Spain 2% A ustralia 1% China Italy 1% 2% Netherlands 2% Canada 3% UK 7% US 52%

Top ten destinations for SR in 2012 in volume sales

Belgium 2% others 13%

others 12%

Australia 1% Turkey 2% Italy 2% France 2% Brazil 3%

UK 8%

US 51%

Japan 7% Germany 11%

Japan 7% Germany 9%

Source: Kenanga Research, Malaysian Rubber Export Promotion Council (MREPC) , various

Page 4 of 10

KENANGA RESEARCH

Rubber Gloves

03 July 2013

Weakening of Ringgit (RM) vs. US dollar (USD) is short term positive to rubber glove players. Generally, a weakening RM is positive for glove makers. Since sales are USD denominated, theoretically, a depreciating RM against the USD will lead to more revenue receipts for glove makers. The ringgit has weakened by 6% to RM3.16 from RM2.99 against the dollar. Ceteris paribus, a 1% depreciation of RM against USD will lead to an average 1%-2% increase in the net profit of rubber glove players. However, we believe impact from currency movements (RM vs USD) to glove players earning is neutral over the long term. This is because glove players typically hedge the currency on a consistent basis, hence in theory any negative or positive impact will be offset over time. Despite seeing the de-pegging of the Ringgit back in 2005 (Recall the peg was RM3.80 against USD1.00), glove players were still able to maintain their margins as well as registering yoy earnings growth (underpin by consistent yoy sales volume growth).
USD vs MYR
3.8000
USDMYR Curncy

3.7000

3.6000

3.5000

3.4000

3.3000

3.2000

3.1000

3.0000

2.9000

Source: Bloomberg, Kenanga Research

Expecting raw material inputs to trade lower or maintain current price levels going forward. We expect both input raw material price of latex and nitrile to stay soft at least over the medium term. We understand that there is abundant supply of nitrile raw material and we do not anticipate shortage of nitrile for the remaining of 2013. China is going ahead with adding eight more crude oil based naphtha crackers (Butadiene is input raw material for nitrile is produced through hydrocarbon i.e., natural gas or naphtha) within the next two years with four already rolling off the press in the first quarter of 2013 namely China Maoming Petrochemical Shihua 100k tonnes capacity in Guangzhou, YPC-GPRO 100k tonnes capacity in Nanjing, Sichuan Petrochemical 100k tonnes capacity in Sichuan and Zhejiang Transfer Synthetic National 150k tonnes capacity in Hangzhou. Formosa Petrochemicals in Taiwan, Titan Petrochemicals and Pertamina in Indonesia, Thailand PTT Global Chemicals and Bangkok Synthetics are also planning to increase capacity. These indicate that there will be no shortage of supply of nitrile raw materials over the next two years. Similarly latex price appears to trend or remain sustained low throughout the remainder of 2013 and over the medium term. Slowdown from China, the biggest rubber user, consuming 3.85 million tons last year, representing 34% of global demand due to the slower-than-expected economic growth there. According to RCMA Commodities Asia Group, a Singapore-based company that has traded rubber for nine decades, rubber is headed for the biggest glut on record as supply exceeds demand for a third year and Southeast Asian exporters ended curbs on shipments. The surplus will expand 57% to 490,000 metric tons this year, enough to meet U.S. demand for six months. As such, the surplus is expected to push down prices of natural rubber or at least remain low over the medium to long term. China, the largest buyer, will import 14% less in the seven months ending in December than a year earlier, the Association of Natural Rubber Producing Countries estimates. As an indication of further slower demand for latex of which tyre manufacturers is one of the biggest consumers, Bridgestone, the biggest tiremaker, used 450,000 tons of natural and synthetic rubber in the first quarter or 4.3% lower yoy in the first quarter than a year earlier as Japanese and U.S. demand weakened.

Page 5 of 10

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KENANGA RESEARCH

Rubber Gloves

03 July 2013

Latex vs Nitrile
3. 50
Nitrile Latex

12. 00

3. 00 10. 00

2. 50 8. 00

R M / k g

6. 00 1. 50

4. 00 1. 00

0. 50

2. 00

M ay -1 3 M ay -1 0 M ay -1 2 M ay -1 1 M ar -1 2 M ar -1 0 M ar -1 1 N ov -1 0 N ov -1 2 N ov -1 1 M ar -1 3 Se p10 Se p11 Se p12 Ju l-1 2 Ju l-1 0 Ju l-1 1 Ja n13 Ja n10 Ja n11 Ja n12

Source: Bloomberg, Kenanga Research

Top pick Kossan, target price raised to RM6.20. Back in 2010, Kossan traded at a peak valuation of 12x Fwd PER. However, the stock is currently trading at 11x CY14E EPS although its FY13 earnings will be a record high. Currently, Top Glove and Hartalega are trading at 15.7 and 15.4 FY14 earnings respectively. We believe Kossans historical 40% PER valuation discount to Top Glove and Hartalega should narrow when we consider the following; 1) Kossans superior net profit growth of 18% and 15% in FY13 and FY14 respectively compared to an average of 10% and 13% for Top Glove and Hartalega in FY13 and FY14; 2) Kossans unprecedented earnings growth underpin by capacity expansion over the next two years; 3) improving dividend payout policy - it is gradually raising its dividend payout ratio (Kossan recently declared a final seven sen tax-exempt dividend. This brought its total full-year FY12 DPS to 12.5 sen, implying a 38% payout ratio well ahead of its <20% payout ratios in the past three years; 4) Kossan is well managed being one of the two glove players apart from Hartalega to pass cost through following the 1QCY13 results. As a result, we are upgrade Kossans TP from RM4.88 to RM6.20 by applying a higher Fwd PER of 14x (from 11x) CY14E EPS which is an 15% discount to Top Glove and Hartalegas target Fwd PER rating. We like Hartalega for (1) its highly automated production processes model, (2) the solid improvement in its production capacity and a reduction in costs, leading it to achieve better margins compared to its peers, (3) its superior quality nitrile gloves through product innovation and (iv) its positioning in a booming nitrile segment with a dominant market position. We continue to maintain OUTPERFORM rating on Hartalega at TP of RM7.10 based on 18x CY14 EPS. We also like Supermax because it is trading at 8.3x FY14 EPS (40% discount to sector average) compared to an average 14% net profit growth over the next two years. We continue to maintain OUTPERFORM call on Supermax at TP of RM2.39 based on 10.2x FY14E EPS. We expect Supermax to pass on the cost through starting from 2QFY13 du to the lag effect in raising average selling price (ASPs). As such, we are not overly concerned of further margin erosions given an estimated 3-5% increase in the ASPs; this was made known to customers in Jan 2013 and will take effect from the second quarter onwards. However, we maintain MARKET PERFORM on Top Glove and TP of RM6.36 based on 15x CY14E EPS. We believe Top Glove is finding difficulty to raise its ASPs in the challenging latex-based gloves market (70% of product mix) and mitigate the minimum wage.

Page 6 of 10

KENANGA RESEARCH

R M / k g

2. 00

Rubber Gloves

03 July 2013

Kossan quarterly breakdown Segmental 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 Chg % q-o-q 3.0 0.6 4.9 2.7 Chg % y-o-y 13.9 6.0 21.4 13.1

Revenue Gloves division Technical rubber products division Cleanroom products division Engineering division Total Pre-tax profit Gloves division Technical rubber products division Cleanroom products division Engineering division Total Pre-tax profit margin (%) Gloves division Technical rubber products division 11 10 10 6 11 9 11 13 10 10 10 12 12 15 12 19 14 12 24.8 3.1 27.9 24.5 2.2 26.6 28.4 2.8 31.1 25.9 4.4 0.1 0.1 30.5 25.5 3.4 (0.3) 28.6 31.1 40.0 41.1 44.5 8.2 55.4 27.0 4.4 (0.3) 34.6 5.5 (0.1) 33.4 6.8 0.8 40.0 4.3 0.1 19.7 (36.7) (85.6) 56.9 27.3 (141.6) 226.1 30.4 256.4 237.8 37.8 275.6 249.5 29.0 278.5 233.4 34.4 13.5 0.2 281.5 251.2 33.4 4.8 289.4 304.8 322.7 318.6 327.3 262.9 38.0 3.8 281.2 36.7 4.8 277.8 35.2 5.6 286.0 35.4 5.8

Source: Bloomberg, Kenanga Research

Kossan - Forward PER
5 PRICE (RM) PER 4.9 x PER 6.7 x PER 8.4 x PER 10.2 x PER 12.0 x

FWD PER PER (X) 14.00 13.00

FWD AVG PER

S.Dev +1

S.Dev -1

S.Dev +2

S.Dev -2

4.5

12.00
3.5

11.00 10.00 9.00

2.5

8.00
2

7.00 6.00 5.00

1.5

4.00
0.5
8 -0 8 9 0 n08 n10 1 n12 n09 n11 -0 9 -1 0 -1 1 -1 2 2 ar -0 9 ar -1 0 ar -1 1 Se p0 Se p0 Se p1 Se p1 Se p1 D ec D ec De c De c De c ar -1 3 ar -1 2 n13

Ju

Source: Bloomberg, Kenanga Research

Hartalega - Forward PER
PRICE (RM) 10
8

Ju

Ju

Ju

Ju

Ju

Fwd PBV Band

PER 9.2 x PER 13.2 x PER 17.2 x
9 PRICE (RM) PBV 0.4 x PBV 1.5 x PBV 2.7 x PBV 3.8 x PBV 4.9 x

PER 1.3 x

PER 5.3 x

9 8 7 6 5 4
3 7

3
2

2 1 0
1

Source: Bloomberg, Kenanga Research

Page 7 of 10

p08 D ec -0 8 M ar -0 9 Ju n09 Se p09 D ec -0 9 M ar -1 0 Ju n10 Se p10 D ec -1 0 M ar -1 1 Ju n11 Se p11 D ec -1 1 M ar -1 2 Ju n12 Se p12 D ec -1 2 M ar -1 3 Ju n13

Ju

Se

Ju n08 Se p08 D ec -0 8 M ar -0 9 Ju n09 Se p09 D ec -0 9 M ar -1 0 Ju n10 Se p10 D ec -1 0 M ar -1 1 Ju n11 Se p11 D ec -1 1 M ar -1 2 Ju n12 Se p12 D ec -1 2 M ar -1 3 Ju n13

n-

08

Ju n08 Se p08 D ec -0 8 M ar -0 9 Ju n09 Se p09 D ec -0 9 M ar -1 0 Ju n10 Se p10 D ec -1 0 M ar -1 1 Ju n11 Se p11 D ec -1 1 M ar -1 2 Ju n12 Se p12 D ec -1 2 M ar -1 3 Ju n13

KENANGA RESEARCH

M
0.5 1.5 2.5 3.5 0 1 2 3 4
ar 08 08 n08

M Ju Se p-0 8 09 09 D ec ar n09 M Ju Se p-0 9 10 10 D ec ar n10 M Ju Se p-1 0 11 11 D ec ar n11 M Ju Se p-1 1 12 Ju Se D npec M D ec ar M

10

12

14

Page 8 of 10
Top Glove - Forward PER
PRICE (RM) PER 1.5 x PER 5.1 x

Rubber Gloves

Supermax - Forward PER

Source: Bloomberg, Kenanga Research

PRICE (RM) PER 4.8 x PER 11.3 x

Source: Bloomberg, Kenanga Research

PER 8.6 x

PER 17.9 x PER 24.4 x

Ju 12 12 -1 2 ar 13 n13

PER 12.2 x PER 15.7 x

ar -0 Ju 8 n0 Se 8 p0 D 8 ec -0 M 8 ar -0 Ju 9 n0 Se 9 p0 D 9 ec -0 M 9 ar -1 Ju 0 n1 Se 0 p1 De 0 c1 M 0 ar -1 Ju 1 n1 Se 1 p1 D 1 ec -1 M 1 ar -1 Ju 2 n1 Se 2 p12 D ec -1 M 2 ar -1 Ju 3 n13
PER 31.0 x

PER (X) 18.00

10.00

12.00

14.00

16.00

0.00

2.00

4.00

6.00

8.00

PER (X) 35.00

10.00

15.00

20.00

25.00

30.00

0.00

5.00

FWD PER

FWD PER FWD AVG PER S.Dev +1 S.Dev -1 S.Dev +2 S.Dev -2

FWD AVG PER S.Dev +1 S.Dev -1 S.Dev +2 S.Dev -2

ar J u 08 nSe 08 pD e 08 cM 08 ar J u 09 nSe 09 pD e 09 cM 09 ar J u 10 nSe 10 pD e 10 cM 10 ar -1 Ju 1 nSe 11 pD e 11 cM 11 ar -1 Ju 2 nSe 12 pD e 12 cM 12 ar -1 Ju 3 n13

ar -0 Ju 8 n0 Se 8 p0 De 8 c0 M 8 ar -0 Ju 9 n0 Se 9 p0 De 9 c0 M 9 ar -1 Ju 0 n1 Se 0 p1 De 0 c1 M 0 ar -1 Ju 1 n1 Se 1 p1 D 1 ec -1 M 1 ar -1 Ju 2 n1 Se 2 p1 De 2 c1 M 2 ar -1 Ju 3 n13

03 July 2013

KENANGA RESEARCH

Rubber Gloves

03 July 2013

Rubber Gloves Sector Peer Comparison NAME Price

Mkt Cap FY12

PER (x)

Est. Div. Yld. FY14E (%)

P/BV Historical ROE (%)

Net Profit (RMm)

FY13E

(x)

FY12

FY13E

FY14E

FY13 NP Growth (%)

FY14 NP Growth (%)

Rating Target Price (RM)

(RM) CORE COVERAGE HARTALEGA HOLDINGS BHD^ KOSSAN RUBBER INDUSTRIES SUPERMAX CORP BHD TOP GLOVE CORP BHD* ^refer to FYE Mar 13,14,15 *refer to FYE Aug

(RMm)

6.30 4.90 1.95 6.35

4,591 1,566 1,324 3,972

19.6 15.0 10.9 19.4

17.9 12.7 9.2 17.3

15.4 11.0 8.3 15.7

2.4% 2.6% 3.2% 2.5%

33.9% 20.0% 15.1% 16.9%

4.89 2.20 1.36 2.80

234.70 104.50 121.80 202.70

256.20 123.60 143.20 225.20

298.80 141.90 159.60 248.70

9.2% 18.3% 17.6% 11.1%

16.6% 14.8% 11.5% 10.4%

7.10 6.20 2.39 6.36

Outperform Outperform Outperform Market Perform

Source: Kenanga Research

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Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM : A particular stocks Expected Total Return is MORE than 10% (An approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%) MARKET PERFORM : A particular stocks Expected Total Return is WITHIN the range of 3% to 10% UNDERPERFORM : A particular stocks Expected Total Return is LESS than 3% (An approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate)

Sector Recommendations*** OVERWEIGHT NEUTRAL UNDERWEIGHT : A particular sectors Expected Total Return is MORE than 10% (An approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%) : A particular sectors Expected Total Return is WITHIN the range of 3% to 10% : A particular sectors Expected Total Return is LESS than 3% (An approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate)

***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenangaresearch.com Chan Ken Yew Head of Research

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