Tuesday, December 6, 2016

Rubber Gloves - Limited Near Term Growth

Author: sectoranalyst | Publish date: Tue, 6 Dec 2016, 04:23 PM

  • Lacklustre earnings recorded by most glove players
  • Earnings affected by various external cost increases
  • Pricing competition to persist at least for the next two years
  • Raw material prices on an increasing trend
  • New BNM policy of converting 75% foreign proceeds into MYR counterproductive
  • Stronger USD will be beneficial but not sustainable in the longer term

Downgrade the sector to NEUTRAL

Lacklustre earnings recorded by most glove players. From the latest earnings announcements, three out of four glove manufacturers under our coverage registered earnings below our full-year earnings estimates. Hartalega (NEUTRAL, TP: RM4.48) was the only glove player that recorded earnings improvement and which came in within our expectation. This resulted in earnings downgrade for the three manufacturers as well as two downgrades in recommendation to NEUTRAL (from BUY recommendations previously).

Earnings affected by various external cost increases. Most of the glove manufacturers’ earnings for 3QCY16 were adversely impacted by various external cost increases. The hike in minimum wage as well as the increase in natural gas price which took effect in 3QCY16 caused the earnings of glove manufacturers to be negatively impacted. This is because it takes about two to three months for these costs increases to be incorporated into the average selling prices (ASPs) to be borne by the customers. Generally, prices are locked in upon confirmation of order which would then take roughly two months to be completed. Therefore, the increases in costs which took place in between these times would not be transferred to the customers. That said, we think that this is a temporary blip as we believe that the conditions will improve once the costs are factored into the ASP starting from 4QCY16 onwards.

Pricing competition to persist at least for the next two years. We opine that pricing competition between the glove manufacturers especially in the nitrile segment will persist for at least the next two years until 2018 as new capacity for nitrile glove production comes on board from all the four major rubber glove manufacturers. It is now a buyers’ market due to the expanded glove production capacity now available to these manufacturers. The glove manufacturers will need to be more competitive in terms of pricing as scalability is no longer an issue, unlike two to three years ago. This is made worse by the various production cost increases mentioned earlier.

To overcome this, we think that the manufacturers will try to ensure that the input costs per glove stays low via: (i) increasing automation in production process; (ii) pushing for higher utilisation rate; (iii) concentrating on customers that are less price sensitive; as well as (iv) having an efficient cost pass-through mechanism. Additionally, we think that the margin compression resulted from the pricing competition will slowly normalise as all the new capacity comes in and the manufacturers would have adapted to the increased production costs.

Raw material prices on an increasing trend. We note that the raw material prices have been slowly creeping up since late September 2016. From our channel checks, we understand that the increase in natural rubber price is mainly due to the increase in demand for motor vehicles in China. This is pursuant to the purchase tax cut on motor vehicles with engine capacities of 1.6 litres and below by the government of China from 10% to 5% which drove the demand for natural rubber with respect to the production of tyres. According to China Passenger Car Association (PCA), sales of motor vehicles with engine capacities of 1.6 litres and below have increased by more than 20% month-over-month ever since the tax cut was introduced. The tax incentive is expected to expire by year-end and the Chinese auto makers are expecting an eleventh-hour surge in sales as customers rush to beat the tax-cut expiration.

Meanwhile, the increase in nitrile price is due to both increases in natural rubber price as well as the temporary shutdown of petrochemical plants in China that produces nitrile butadiene. We understand that the temporary shutdown is due to maintenance works as well as refurbishment done on the production plants. We think that the increasing price trend for both natural rubber and nitrile butadiene will continue until the first half of 2017. This is due to annual wintering season for rubber trees (from March until May) which will cause rubber price to remain elevated as supply for natural rubber declines during the period.

Stronger USD will be beneficial but not sustainable in the longer term. The current MYR weakness against USD is arguably a result of policy uncertainty brought upon by the recently concluded US general election. In addition, the market is expecting that there will be a rate hike by the US Federal Reserves in December. Admittedly, the strong USD will contribute positively in terms of revenue and earnings especially when export of gloves is USD denominated. However, we do not think the strong USD will persist throughout 2017 as we opine that once the uncertainty in regard to the policies of the newly elected US president subsides, the USD will give back some of its recent gains.

BNM policy may result in double conversion by rubber glove exporters. Bank Negara Malaysia announced that effective 5 December 2016, exporters holding proceeds in foreign currency would need to convert as much as 75% of it into Ringgit. It was one of several other measures announced to support the falling Ringgit. As the bulk of revenue for rubber glove manufacturers are denominated in foreign currency, USD is normally used as a natural hedge for the purchase of raw material prices such as nitrile, latex and chemicals. This new policy will result in glove manufacturers having to execute double conversion as USD revenue is converted into MYR and back into USD for expenditure purposes.

Downgrade the sector to NEUTRAL. Based on the expected global demand for rubber gloves which is expected to grow by 8-10% annually, we think that the prospect for gloves is still positive in the long run. This is given the fact that Malaysian rubber glove manufacturers have the advantage against their competitors abroad in terms of both cost efficiency as well as scalability. The Malaysian glove manufacturers currently commands roughly 58% of total rubber gloves supply and we think that there is potential for the market share to increase to >60% in the medium term given the ongoing capacity expansion undertaken by the Malaysian glove manufacturers currently. All factors considered, we are of the opinion that the near term prospects for the rubber glove industry will be challenging as: (i) raw material prices are expected to continue trading at current level and maybe even higher due to the upcoming wintering season for the natural rubber (March-May annually); (ii) strong USD might not persist for an extended duration; and (iii) new BNM policy counterproductive to rubber glove manufacturers. Hence, we are downgrading the sector to NEUTRAL (from POSITIVE) in view of the near term challenging operating environment as well as the lack of upward catalysts for the sector at this juncture.

Source: MIDF Research - 6 Dec 2016

Semiconductor Sector - Set For a Strong Finish

Author: sectoranalyst   |   Publish date: Tue, 6 Dec 2016, 04:23 PM 

Largest YoY Increase Since March 2015

Worldwide semiconductor sales grew 5.1% YoY (+3.4% MoM) to US$30.8bn in October. Building on recent strength, this is the third month of consecutive YoY growth and largest YoY increase since March 2015. The positive MoM trend extended to six straight months. Better numbers were witnessed across nearly every major semiconductor product category. Set for a strong finish, WSTS revised its sales forecast upwards. It is now predicting flattish 2016 sales (-0.1% YoY), followed by a 3.3% YoY growth in 2017.

Americas Back in the Green

All regions reported positive MoM growth for the fourth consecutive month. Americas posted its first positive YoY growth after 14 months. YoY sales were driven by a pickup in China (+14.0% YoY) and Japan (+7.2% YoY). Asia Pacific (All Others) reported a 1.9% YoY increase. Only Europe reported softer YoY numbers, with sales declining 3.0% YoY.

Ends 11 Month Streak

Ending its 11 month streak, the book-to-bill ratio dipped below parity to 0.91x in October. This was due to a 9.0% MoM increase in billings vs. a 5.1% MoM decline in bookings. Nevertheless, both bookings (+12.2% YoY) and billings (+19.8% YoY) remained at elevated levels, compared to a year ago.


We maintain our Overweight call on the semiconductor sector. We remain positive on the sector as a beneficiary of the weak ringgit. Coupled with a recovery in global semiconductor sales, this should translate into a better outlook for 2017. We have BUY calls on Inari, Unisem and MPI. MPI is our top pick for the sector at a TP of RM8.85. We like the stock as a proxy to growth in the automotive segment, benefactor of weak ringgit and its undemanding valuations. It is trading at an undemanding PE of 9.0x, vs. its peers of 11.7x.
Source: TA Research - 6 Dec 2016

Sector Update – Telco (UNDERWEIGHT, maintain) - In a tight spot

Author: kltrader   |   Publish date: Tue, 6 Dec 2016, 04:23 PM 

In a tight spot

Although funding issues for future spectrum re-farming exercises are not expected, any increase in competition intensity or a larger-thanexpected payment could thwart FCFs and may put dividends at risk. With the government’s commitment on reducing its fiscal deficit and new competition trying to carve out market share, the risk is real. Meanwhile, sector dividend yields are already unappealing while the increased risk does not support the sector’s premium valuations. Maintain sector Underweight rating with DiGi for preferred exposure.

Cellcos can juggle spectrum cost and dividends, but risk is there

The government managed to raise upfront fees of RM2.7bn from the recent round of spectrum reallocation (for the 900Mhz and 1800Mhz bands), or the first of three lined up till 2018. While there is sufficient capacity for the cellcos to juggle spectrum cost and dividend commitment, we think that dividend upside will be capped, while downside risk is enhanced. Should the cost of future spectrum be higher than anticipated or competition accelerates, the threat of lower dividends would be real.

Competition more rational, for now

On a more positive note, irrational competition which has eroded revenue and profitability of the 3 incumbent cellcos over 2014-15, has somewhat dissipated in recent months. We would nevertheless not discount further price competition from the fourth player, U Mobile, which has gained traction; with better spectrum allocation, it will be an even more formidable player. Webe, which was recently launched, remains a niche player, but can be a potential threat with its strong parentage and their ambitions.

3Q16 results season – broadly in line

9M16 core earnings for the telcos fell a sharp 27% yoy but were broadly in line with expectations, with the exception of Axiata. Sequentially, earnings picked up, although largely due to the 2Q16 low base. On the whole, earnings for the telcos were generally impacted by more intense price competition and start-up losses. We had downgraded Axiata to a Sell due to continued earnings disappointment and the lack of a re-rating catalyst.


Although stock prices have corrected and the sector has underperformed the broader FBMKLCI, sector valuations remain lofty. We think that this could be attributed to a combination of reasons including the sector weighting and its liquidity. The sector’s Shariah compliance status also helps in its positioning, especially amongst domestic funds. Nevertheless, against a backdrop of unattractive valuations and yields that have turned less compelling (because of the earnings contraction), and the lack of a rerating catalyst, we remain sector Underweight with DiGi (DIGI MK) as our sector top pick given its ability to sustain dividend payouts, growing revenue market share and most appealing yields.

Valuations and recommendation

Sector still trading at valuation premium …
Although stock prices have corrected ytd and the sector has underperformed the broader FBM KLCI, sector valuations remain lofty at an average 2017E PE of 23x. We think that this could be attributed to a combination of reasons including the sector weighting in the FBM KLCI and its liquidity. The sector’s Shariah compliance status also helps in its positioning, especially amongst domestic funds. Hence, despite unattractive valuations and yields that have turned less compelling (because of the earnings contraction), the sector remains a crowded trade for the above reasons.
… which in our view is not justified
On the whole, the PER multiples are generally not far from their peaks (respective companies’ PER bands in Fig 23-26) while dividends yields are significantly lower (Fig 21), having more than halved since their peak in 2012 and near their 5-year lows. This, in our view, does not justify the premium valuations. Moreover, with the potential risk of lower dividends ahead, the valuation premium is even less justifiable.

Maintain Underweight

Against a backdrop of unattractive valuations and yields with a lack of immediate re-rating catalysts, we remain sector Underweight. Furthermore, with a rising US interest rate environment (and potentially a rise in Malaysian Government Securities’ yields), we believe that there is further scope for sector underperformance (Fig 22). For sector exposure, DiGi is our sector top pick given its ability to sustain dividend payouts, growing revenue market share and most appealing yields.
Source: Affin Hwang Research - 6 Dec 2016

“兄弟”自小分开抚养 重逢后皆是跨性女人


发表于 2016年12月6日 晚上6点4分 更新于 2016年12月6日 晚上6点31分



妮莎昨天在面子书分享,小她三岁的妹妹萨拉丽安特拉(Saraliantra Ayub)的故事。原来,她们从小被分开抚养,而多年后重逢才知道原来的“弟弟”也是跨性女人。





















妮莎是著名的跨性社运分子,曾在今年获得美国颁发国际妇女勇气奖(International Women of Courage Award)的殊荣。

加州圣地亚哥市也将妮莎生日定为“妮莎雅尤日”(Nisha Ayub Day),以表彰她的维权贡献。


Introducing Amazon Go and the world’s most advanced shopping technology

每秒钟出现新网购者 东南亚电商潜能大

498点看 2016年12月5日













弗若斯特沙利文咨询公司(Frost & Sullivan)也预测,东南亚电子商务市场总值,将从2013年的70亿美元(约308亿令吉),迅速增长至2018年的345亿美元(约1518亿令吉),5年内市场扩增的金额是275亿美元(约1210亿美元),或增长了79%,近乎一倍。





































Karex expects to rise again

Monday, 5 December 2016

Karex workers sorting out condoms. Karex, the world’s largest condom manufacturer, last week reported a 63.4 year-on-year decline in its first-quarter net profit of financial year 2017 to RM8.14mil, while revenue rose slightly to RM80mil from RM76.1mil in the same quarter a year ago.

PETALING JAYA: Despite a drop in its financial performance in the latest quarter, Karex Bhd is quietly confident that it will pick up again in the year ahead.

“There was a delay in the delivery of some of our products. The reason was because there were quite a lot of stocks that were ready to go. It was registered but was unable to be shipped out to the tender market,” a Karex investor relations (IR) personnel told StarBiz.

“This delay, which is only by a few days, is estimated to be at RM13mil which will eventually be recognised. The tender market can be a bit lumpy to our earnings, as it is sold on a large batch basis,” he said.

Karex, the world’s largest condom manufacturer, last week reported a 63.4% year-on-year (y-o-y) decline in its first-quarter of financial year 2017 (FY17) ending June 30 net profit to RM8.14mil, while revenue rose slightly to RM80mil from RM76.1mil in the same quarter a year ago.

The company said that the delayed orders have subsequently been delivered, while net profit was affected in the quarter due to higher distribution expenses and a one-off corporate exercise expense.

It also added that lower foreign-exchange gains also contributed to the lower profit after tax.

“We believe our performance due to the delays will normalise again, as we have also been doing this tender business for quite a long time.

“The tender market’s contribution to our sales for the latest reported quarter is slightly below 29%, and it is usually higher than this,” he said.

“It was quite a strange quarter for us, given that the tender market sales were quite low.

“In the previous quarter (fourth quarter), the tender segment sales were at 39% of total sales with commercial at 59%,” the IR representative added.

The tender market segment for Karex’s products are usually purchased by non-profit organisations such as the United Nations (UN) to be distributed to lower-income countries such as those in Africa which are struggling with the HIV AIDS pandemic.

This segment has been disrupted in calendar year 2016 due to the humanitarian refugee crisis that refocused the UN’s efforts to put all its energy and budget to deal with this issue, while putting other matters such as restocking on the back burner for the time being.

“It has been an unprecedented year for the tender market. These non-profit organisations like the UN usually purchase enough condoms for a year’s stock to be distributed to lower-income countries. For the past year, they have been using their stocks to do the distribution,” he said.

“We expect that their ready stock levels are now low due to them tapping on their inventories, but they are not reducing their distribution either.

“We expect them to restock soon for the year ahead,” he added.

Karex’s tender market usually makes up to the low 40% of its total sales for the year. It was at 37% in FY16, while in the last quarter, it was at 29%.