Some More Upside
Fresh after its recent 1:1 bonus issue, Supermax Corporation (Supermax)continues to get market support. Supermax is now trading ten sen down at RM2.09 from the ex-price of RM2.19.
A research house, OSK Research continues to be bullish about the rubber gloves sector,selecting Supermax as its top pick. The potential target price envisaged is RM2.75.
Why Supermax?
OSK likes the company because of its attractive valuation and the fact that it operates in a recession-resilient industry.
While there have been isolated cases of bird flu in Asia currently, health care MNCs are beginning to gradually stock up rubber gloves to avoid buying them at "cut throat" price should a pandemic breaks out.
The risks to its upside potential are the continuing high cost of rubber supported artificially by both the Indonesian and Malaysian governments and the rising ringgit.
Thailand has also meanwhile approved a plan to increase the price of locally-grown natural rubber to THB120 (RM11.84)/kg through the Bank of Agriculture and Agricultural Cooperatives-offering soft loans of THB5bn to local agricultural institutes and another THB10bn soft loan to the Rubber Estate Organization, both at zero per cent interest to help them purchase natural rubber from local rubber farmers.
Intervention was necessary because of poor rubber prices arising from the global economic slowdown; the flooding crisis in Thailand which had temporarily suspended its production of automobiles and parts and the slower automotive growth in China which in turn slowed down its purchase of Thai natural rubber and instead had switched to the cheaper Indonesian rubber.
Sans all these support schemes, the natural forces of demand and supply will determine rubber and latex prices.
Latex price are expected to stay above RM7 in the shorter term.
While the scenario is not great, it remains good for Supermax to continue to perform well.
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