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CIMB Research Neutral on glove sector over Ebola outbreak
Publication Date : 11-08-2014
CIMB Equities Research is maintaining its Neutral stance on the rubber glove companies as it does not think demand will surge for now despite the outbreak of the Ebola virus in West Africa.
It said on Monday it expected long-term positive effects on demand for condoms and rubber gloves, as this outbreak should ultimately result in improved health awareness.
“We continue to believe that Top Glove will be the biggest beneficiary should demand pick up. As opposed to other glove manufacturers which are running at full utilisation rates, Top Glove's natural rubber production capacity utilisation is at 70-75 per cent.
“Also, it has a bigger sales exposure to Africa than its peers, at 4 per cent of total sales. Kossan remains our top pick for the sector,” it said.
To recap, the World Health Organisation on Friday declared the Ebola virus outbreak in West Africa as an international public health emergency that requires an extraordinary response to stop its spread.
WHO is however not recommending general bans on travel and trade yet, and described the risk of contracting the virus when travelling to the affected areas as extremely low. This is the largest and longest outbreak of Ebola ever recorded. It has so far killed at least 961 people.
“We maintain our view that the impact of the disease on glove demand is minimal for now, as it is still mainly confined to countries in Africa.
“We believe the WHO declaration is largely intended to mobilise the international community to help contain the spread of the virus as the affected countries do not have the capacity to manage an outbreak of this size and complexity on their own,” said the research house.
CIMB Research said it had again checked with the rubber glove companies, and found that they have not seen a surge in demand for rubber gloves.
“Even if there is a demand surge, all of the rubber glove companies' natural rubber production lines (except for Top Glove's) are running at maximum utilisation rate, leaving little room for increased production.
“Africa sales contributions are small for all the rubber glove companies,” it said.