Lower gas price hike positive surprise for glove players, says MIDF Research

PETALING JAYA: MIDF Research deems the reduction in the hike of natural gas tariff a positive surprise for glove producers as the quantum of increase is less than 1%.

This, the research house said, will assist in lowering gloves production costs and offsetting some of the impact of volatility coming from raw materials price and currency movements.

Owing to the rebate from the GCPT mechanism, the increase in the average effective gas tariff is now reduced to 0.57% to RM26.46/MMBtu for July-December period against RM26.31/MMBtu for January-June.

MIDF Research said most of the major glove players fall within the category F and L, where according to calculation will experience on average less than 1% increment in effective gas tariff from the previous tariff.

On average, natural gas constitutes of about 10% to 12% of the total glove production costs for glove producers under MIDF coverage.

“Hence, our preliminary calculation shows that all four glove producers under our coverage will have negligible impact on earnings of about <1% arising from this latest revision in natural gas tariff,” it said.

In addition, MIDF Research believes the impact on the glove producers will be minimal, as they will have to pass on the cost savings to their customers, which will in turn result in lower average selling prices.

MIDF Research is maintaining a “neutral” call on the glove sector due to lack of re-rating catalyst at this juncture. The research house also said it remains wary of the movements in raw materials price and currency as well as the slow down in the industry expansion progress.

MIDF’s top picks for the sector are Hartalega Holdings Bhd and Kossan Rubber Industries Bhd.