AmInvestment Bank starts coverage on Careplus Group with “buy”call

PETALING JAYA: AmInvestment Bank has initiated coverage on Ace Market-listed glove manufacturer Careplus Group Bhd with a "buy" recommendation, and a fair value of 56 sen a share.

The fair value represents a 38% premium to the 40.5 sen it closed at yesterday.

In a note yesterday, the research house said that it is bullish on the prospects of Careplus over its carefully crafted expansion plan up to the year 2020.

AmInvestment said the company is set to expand its capacity to produce 10 billion pieces of gloves annually by 2020. Going forward, it said the company is eyeing markets like China, India and North America to absorb the additional capacity.

The research firm expects Careplus's profit margin to rise from the current 3% to 5% as a result of better economies of scale and a bigger share of the global market share of 4% by 2020, from 1% currently.

AmInvestment said the company "thrives in an industry that is largely dominated by the "big four" — Top Glove Corp, Hartalega Holdings, Kossan Rubber Industries and Supermax Corp".

Furthermore, it said the company's' market share may be less than 1% but its key advantage lies in its strong distribution network in the Central and South American region, noting that the region constitutes 69% of Careplus' revenue for financial year ended 2016.

"Being smallish in terms of market share, the group is able to provide better service to customers who are normally ignored by the "big four" and would be able to adapt quickly in a changing environment and demand.

"The recent fall in latex prices amidst the strong US dollar has boosted earnings and encouraged capacity building," it added.