Adventa 4Q net profit surges 220% to RM11.8m

KUALA LUMPUR: ADVENTA BHD []'s net profit surged 220% to RM11.8 million for the fourth quarter (4Q) ended Oct 31, 2010 from RM5.36 million a year ago, on the back of a 22% improvement in revenue to RM91.02 million.

The glove maker said on Wednesday, Dec 22 earnings per share were 7.72 sen, while net assets per share was RM1.46. It proposed a first and final tax exempt dividend of seven sen per share for the financial year ended Oct 31, 2010.

For FY ended Oct 31, net profit more than doubled to RM35.8 million from RM16.96 million, while revenue rose 19% to RM336.17 million from RM282.74 million.

It explained the rapid rise in rubber prices induced a large time-lag related delay in revenue increase even though costs were are eventually passed into selling price.

Adventa said a new factory was completed in this period, adding capacity to the tight high utilisation rate in some products.

Commenting on its outlook, Adventa said its financials closed the fourth quarter on a tumultuous year of material costs increases and large fluctuations in both the US dollar and euro.

"These fast changing dynamics pose a challenge to match current cost against forward sales. The several cost cutting measures implemented this quarter help mitigate surging costs and should bring improvements to next year's earnings," it said.

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Price reaction to the report

23.12.10

ADVENTA (TP RM3.73– BUY) - OSK

9MFY10 Results Preview: Hurt By External Factors

Adventa is expected to announce its 9MFY10 results later this month, which we think may come in below consensus and our expectations given that latex prices stayed at a high of about RM7.00/kg, and the USD continued to weaken against the MYR. However, we believe 4QFY10 would be a better quarter since the company will have additional capacity from its new nitrile glove lines. We are tweaking our FY10-11 earnings downward by 8%-13%. Maintain Buy, but at a lower target price of RM3.73.

CIMB Research maintains Overweight on glove sector

KUALA LUMPUR: CIMB Equities Research has an Overweight call on the glove sector with Adventa and Supermax being its top picks.

"Rising incidence of pandemic diseases like H1N1, improving standard of living and a wider market reach continue to underpin the sector’s growth," it said on Wednesday, April 14.

On the performance of the glove makers share prices recently, it said the stocks took a beating recently, which it suspected was partly due to comments made by Green TECHNOLOGY [], Energy and Water Minister Peter Chin, who confirmed that an increase in electricity rates was imminent as well as downgrades by some brokers.

"While we reckon that the overall sentiment for glove makers is weak, any share price weakness is an opportunity to accumulate given that the recent selldown may have been overdone," it said.

CIMB Research said in general, energy makes up about 10% of glovemakers’ cost and out of the total energy cost, 80% is natural gas. Hence, the impact of higher electricity bills on the bottomline is meager. In addition, the companies can easily pass on the higher cost to its customers.

"Also, our power analyst sees no urgent need for a tariffs hike by the Tenaga Nasional. Fundamentally, we have an OVERWEIGHT call on the sector with Adventa and Supermax being our top picks," it said.

Glove makers continue to slide

KUALA LUMPUR: Glove manufacturers were among the major losers on April 13, led by TOP GLOVE CORPORATION BHD [] and KOSSAN RUBBER INDUSTRIES BHD [], on concerns over raw material costs after rubber prices jumped to a 20-month high in Japan, and the ringgit’s appreciation against the US dollar.

Top Glove lost 60 sen or 4.4% to RM12.90, Kossan fell 35 sen or 4.4% to RM7.56 and SUPERMAX CORPORATION BHD [] shed 25 sen or 3.6% to RM6.64. LATEXX PARTNERS BHD [] gave up 22 sen to RM3.77, HARTALEGA HOLDINGS BHD [] 18 sen to RM7.60 and ADVENTA BHD [] eight sen to RM3.37.

The FBM KLCI slipped 5.09 points or 0.4% to 1,334.52 on April 13.

Analysts were mixed on glove makers’ prospects following the battering.

MIDF Research said the slump on April 13 was a healthy correction and investors should view any weakness in the share prices of the glove counters as an opportunity to accumulate for short-term trading.

It said the companies’ shares rebounded strongly after receding by 11.9% to 14.4% at end-February and early March, adding there was potential upside as the rubber glove makers’ 1Q10 results were expected to be favourable with potential bonus issues looming.

“We are maintaining our trading buy recommendation and all our target prices (TP) for the glove companies under our coverage. Our TP for Top Glove is RM14.68, based on 17 times EPS10, after factoring its net cash of 88 sen per share.

Kossan and Hartalega’s TPs are RM9.04 and RM8.80 respectively, derived from 14 times and 14.5 times PER,” it said in a note released on April 13 afternoon.

The research house said the outlook for the glove sector remained favourable, adding that with the current demand-supply disparity, glove manufacturers were enjoying better cost-passing power.

Top Glove indicated that it was able to pass on up to 90%-100% of the variance in costs to customers, it said.

“Besides, the time lag for glove producers to pass on the additional costs is shorter now compared with roughly two months previously.

“This is manifested by their sustainable strong earnings margin despite higher latex price and weaker US dollar. We believe that earnings margin should be safeguarded in 1H10 given higher plant utilisation rate and better pricing power,” it said.

MIDF Research said excess supply in 2H10 and beyond was its main concern, as the glove companies it had visited were on track with their expansion plans to cater for increasing global demand.

“Although we are positive on the consistent global glove demand growth, we are also concerned about the potential excess glove production capacity, which we believe will affect earnings margin, and hence lower earnings growth moving forward (we still expect positive growth rate).

“We gather from industry players that excess supply is a risk but it only affects a certain segment, namely the low-end products. This is due to the barrier of entry for the higher-value and R&D-focused products,” MIDF said.

The research house added, however, that its concerns might be eased by stronger-than-expected global glove demand and the delay in the expansion plans.

Other risks were valuation issues, as the three glove companies under its coverage were trading at above their respective five-year average PER, it said.

OSK Investment Research senior analyst Jason Yap maintained his overweight recommendation on the glove sector, and reiterated his buy calls on Top Glove, Supermax and Kossan.

He said the fall on April 13 was a correction, with punters taking profit as the share prices had reached high levels.

“The concerns about raw material costs will also dissipate, as latex price is seasonal and should taper down after May. The companies can also pass on the cost to end-buyers.

“We expect absolute figure of bottom line to be retained but margins to gradually decline because of the higher revenue base if glove makers increase prices to take into account raw material prices or currency exchange,” he said.

Meanwhile, Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi said the rubber glove sector was generally already highly priced, as evident from the fluctuation in prices over the past few trading days.

“The stocks in the sector have had quite a lengthy positive run already. We would recommend investors to take profit and step aside for now,” he said.

Lee said the key support level for Top Glove was RM12.25, Supermax RM6.04, Kossan RM7.19 and Hartalega RM7.62. If prices went below these levels it would be critical, he added.

He said Latexx and Adventa were already trading below their key support levels of RM3.83 and RM3.49, respectively.

Last week, AmResearch downgraded the glove sector to underweight. It noted that demand growth had probably peaked and should decelerate going forward, thus shift of pricing power from manufacturers to consumers would accelerate, exacerbated by additional production capacity as early as mid-year.

AmResearch, which had downgraded Top Glove and Kossan to hold with fair values of RM12.50 and RM7.65, respectively, told The Edge Financial Daily on April 13 it was maintaining its recommendation on the sector and target prices for the two stocks.

Written by Surin Murugiah,Wednesday, 14 April 2010 00:18

Adventa..Target Price TM4.24...than RM6.10

Target price extracted from yy's blog

Adventa on a New Uptrend?

OSK maintains Overweight on Malaysian rubber glove makers

OSK maintains Overweight on Malaysian rubber glove makers, following approval of healthcare overhaul bill by U.S. congress; analyst Jason Yap estimates incremental demand from U.S. arising from approval of bill at 768 million gloves annually; says while additional demand "not big," this will add to further supply constraints as glove makers already running at maximum utilization rate and may not have room to ramp up production to meet any surge in demand. "The strong demand will reaffirm their ability to sell the gloves at a premium and pass on 100% of the cost increase to customers," Yap says; names Top Glove (7113.KU), Supermax (7106.KU) and Kossan (7153.KU) as Top Picks. Top Glove last traded +1.2% at MYR13.08, Supermax +1.3% at MYR6.46, Kossan +3.1% at MYR7.64

A higher rating for branded glove firms?

Most gloves produced under OEMs sold to branded resellers. The rubber glove industry is one in which Malaysia is leading globally. However, on closer examination, it would appear the bulk of rubber glove companies like Top Glove Corp Bhd, Hartalega Holdings Bhd, Kossan Rubber Industries Bhd and Latexx Partners Bhd are original equipment manufacturers (OEMs) that produce rubber gloves sold under the reseller’s brand name. Most of the resellers like Kimberley-Clark, McKesson Corp, Cardinal Health, Medline and Ansell provide a wide range of healthcare and hospital products.Increasingly, these companies are manufacturing less and outsourcing production to OEMs. Instead, they are focusing on research and development (R&D), brand development and distribution. Although, OEM rubber glove manufacturers in Malaysia can make reasonable returns due to the limited number of large rubber glove makers, the scope to increase margins is limited as resellers control the brand and can shift their orders to other OEM rubber glove manufacturers offering lower prices.The margins of OEM manufacturers are thus determined by the type of gloves they produce and their operational efficiency.
Hartalega enjoys the highest margin among OEM manufacturers due to its operational efficiency and a higher percentage of nitrile glove production which currently enjoys better margins. Latexx also enjoys good margins as its production facilities are concentrated in just one location, thereby minimising overheads and ensuring better quality control.

Among the listed rubber glove companies, the only two involved in selling rubber gloves under their own brands are Supermax Corp Bhd and Adventa Bhd. Around 55% of rubber glove sales by Supermax consist of its own brand of gloves. In 2008, Supermax’s dental brands achieved a commendable 7.1% share of the dental glove market in the US. Nevertheless, the challenge faced by Supermax is that large US hospital chains would normally like to simplify logistics by buying from companies that can provide a full range of healthcare and hospital products. Hence, Supermax sells mainly through distributors and dealers who target smaller establishments like nursing homes, clinics, dentists, laboratories rather than large hospital chains. Supermax enjoys operating profit margins of around 30% for gloves sold under its own brand, although margins are currently much higher in Mexico and Brazil where there is a shortage of gloves.

Adventa is the only listed company in Malaysia that is producing surgical gloves which require a more complicated process. Around 60% of surgical gloves are sold under its own brand throughout the world. To develop cutting-edge surgical gloves, Adventa has a R&D centre with eight chemists and six assistant chemists. Its gloves are also tested by three surgeons who provide invaluable feedback. Adventa is in the process of patenting some of its inventions. Operating profit margins for its own brand of surgical gloves are as high as 40%. Recognising the need to provide a full range of hospital products, Adventa has set up a distribution arm to sell a range of hospital and disposable products utilising its global network of distributors. Due to strong demand for its surgical gloves, Adventa is planning to expand its surgical glove capacity from 250 million gloves per annum currently to 350 million per annum by year-end and 450 million per annum by the end of 2010. 

The current valuations of Malaysian rubber glove companies do not seem to reward companies that sell gloves under their own brands. In fact, Supermax and Advanta have among the lowest price-earnings ratio (PERs) among rubber glove companies (see table). Perhaps this could be partly due to company-specific factors. In the case of Supermax, it is still recovering from the financial burden arising from its failed investment in APL Industries Bhd, though it would appear that the company is on the road to recovery. In the case of Adventa, it is not a very well covered rubber glove company and its strong operating profits may be masked by its one-off foreign exchange losses. Kimberly-Clarke, which markets a wide range of consumer and disposable products globally under its own brand, is trading on a prospective PER of 13.5 times while both Supermax and Adventa are trading on PERs significantly below 10 times despite faster earnings growth. Branding has ensured better margins for Supermax’s and Adventa’s gloves sold under their own brands. The challenge is to enhance their brands and boost sales in the face of competition from multinationals. If they are successful, the potential earnings growth could be tremendous as they are starting from a lower base compared with the near-stagnant sales of multinationals such as Kimberly-Clarke.

Extracted from http://yangyang-yyyynyanggmailcom.blogspot.com

Adventa Charts

CIMB Research keeps Adventa (7191.KU) with unchanged MYR5.44 target, pegged to 13.2X PE or a 20% discount to peer Top Glove's (7113.KU) target PE of 16.5X. "We like Adventa for its niche in surgical glove and aggressive long term plans to grow its other business segments and become a significant healthcare products supplier in the region," says CIMB; adds company expects sales to increase progressively this year as new capacity from the new high output factory in Kluang and new lines from Kota Bharu plant will allow it to handle more orders. Also expects Uruguay plant to contribute to earnings from 3Q FY10 as utilisation rate has rocketed from 20% to 60%. Stock last +1.7% at MYR3.66. (elffie.chew@dowjones.com)

Maintain Buy, with our target price maintained at RM5.37 based on a PER of 15x FY11 EPS - OSK.

Note: Final Dividend of 4 sen per share tax exempt for the financial year ended 31 October 2009 Xdate 23 March 2010. Seventh Annual General Meeting of ADVENTA is scheduled to be held on Thursday, 25 March 2010

Shareinvestor..

Adventa 1QFY10 Results Review: Forex Losses No More

ADVENTA (TP RM5.37– BUY)
The 1QFY10 results were within expectations, mainly contributed by continuously strong demand for examination gloves, which enabled the company to not only fully pass on the cost increase to customers in a timely manner but also allowed it to command premium selling prices. Going forward, we expect demand for its examination gloves to remain firm given Adventa’s niche in surgical and dental gloves. Maintain Buy, with our target price maintained at RM5.37 based on a PER of 15x FY11 EPS - OSK.

2359 GMT [Dow Jones] Adventa (7191.KU) may rise to MYR3.46 (yesterday's intraday high) vs yesterday's close at MYR3.38 (+0.3%) says trader; this after company posts fiscal 1Q net profit to January 31 of MYR9.35 million vs MYR3.23 million year earlier; revenue rises to MYR76.8 million vs MYR68.2 million previously. Surgical gloves maker says demand for both surgical, non-sterile examination gloves "strong in all markets", increase in price of natural rubber latex not cause for concern, successfully passed on to consumer in previous quarters, "we do not see any difficulties this year in this respect as the commodity prices are well publicised," but adds, may see small change in margins in 2Q due to time lag in price increments. Trader says better results will boost shares; latex glove makers are benefiting from high demand coupled with tight supply situation; "it's not likely to change this year," trader says. (KPL)

CIMB Research maintains Outperform on Adventa - tp=RM5.44

CIMB Research keeps Malaysia's gloves sector as Overweight

CIMB Research keeps Malaysia's gloves sector as Overweight, underpinned by superior earnings growth to the market. "Prospects remain favourable for glovemakers as demand growth is sustainable," says CIMB. Adds, many rubber glove companies under house coverage are expanding their capacity in big way to meet current shortage supply. Rates all glove stocks under coverage at Outperforms; recommends Adventa (7191.KU), last off 2.3% at MYR3.42, Supermax (7106.KU) +1.3% at MYR6.17, as top sector picks. Says factors that could extend the re-rating include continuing uptick in demand from healthcare industry, ongoing capacity expansion, above-market earnings growth.

Analysts: Rubber glove firms offer tremendous upside

STOCK analysts are staying bullish on the prospect of rubber glove makers this year after a sterling 2009, convinced that the strong demand seen last year can be sustained.

Rubber glove companies including Supermax Corp Bhd (7106) have far outperformed the FTSE Kuala Lumpur Composite Index last year, having soared between 94 per cent and 540 per cent compared to a 45 per cent gain in the local benchmark.

"Despite the strong performance, their price earnings multiples remain at a discount to the market instead of the premium that they historically traded at," CIMB Research wrote in a note on January 6.

The sector stands at an average financial year 2010 price earnings multiples of 9.4 times, or just half the valuations during their peak at the end of 2006 and early 2007, it noted.
"We believe that the rubber glove companies are still undervalued and offer tremendous earnings upside due to their expansion programmes," CIMB said.

The stockbroker kept its overweight stance on the sector, with Adventa and Supermax remaining its top picks in the industry.

Its target price for Supermax was pegged at RM7.96, representing a 56 per cent potential upside from its last traded price of RM5.12. Adventa's target price was put at RM5.44.

"Many of the companies under our coverage are undertaking major capacity expansion, which will ensure earnings growth that is superior to the market," CIMB said, adding that factors that could extend the re-rating for the sector include the continued rising demand from the healthcare industry, ongoing capacity expansion and strong earnings growth.

Capital gains aside, Affin Investment Bank believes that shareholders may potentially be rewarded by another round of bonus issue or special dividends.

"Judging from past track record, glove manufacturers have been generous in rewarding shareholders via at least two to three rounds of bonus issues since their initial public offerings, backed by continued profitability and swelling retained earnings," Affin pointed out in a January 11 report.

Affin estimates that companies under its coverage, namely Kossan Rubber, Supermax and Top Glove, have enough share reserves to give out bonus shares.

"While this will not have any fundamental impact, any bonus issue exercise is positive to sentiment and share price," Affin said.

Merrill recommends specific stock picking

By Chong Pooi KoonPublished: 2010/01/27

MERRILL Lynch Wealth Management, which rates China and Hong Kong as its top markets for stocks this year, says it sees limited upside potential for Malaysian shares although selected companies like rubber glove makers can outperform.

"We think Malaysia is rather fully valued, so the strategy has to be specific stock picking," its chief investment officer for Asia Pacific, Stephen Corry, said in a media interview in Kuala Lumpur yesterday.

He said banks with exposure to the improving capital market activities as well as rubber glove makers are likely to perform this year. He did not name the stocks due to the bank's policy.

Merrill Lynch, now a unit of Bank of America following a merger, believes that overall, stocks and commodities will give better returns than bonds and cash this year.



A muted recovery in developed economies will lead to low core inflation and steep yield curves this year, acording to Merrill Lynch.

In contrast, rising longer-term interest rates will make government and corporate bonds less attractive.

"Retail investors are pursuing two strategies as we can see. They believe there could be deflation, so they bought fixed income, specifically A-grade corporate papers. They also thought there could be inflation, that's why they like emerging stocks and commodities.

"People are buying inflation and deflation but they are not buying low inflation and equity, so that's where we see opportunity. That's part of reasons why we think the MSCI All-Country World Index could reach 350 this year, roughly 15 to 20 per cent upside," Corry said.

The combination of huge policy stimulus from governments, a steep yield curve and low volatility are factors that contribute to its bullish view on shares.

Merrill Lynch likes stocks from Europe, Asia as well as emerging market consumer shares.

Adventa (7191.KU) at Buy

Maybank Investment Bank Research rates Adventa (7191.KU) at Buy based on charts for long-term target of MYR6.10; notes glove maker made major Wave 2 low of 90-sen in July 2009, with grossly oversold signals. "The stock is in a firm Wave 3 uptrend, confirmed by the positive crossover from the CCI, DMI, MACD, Stochastic and Oscillator indicators," says chartist Lee Cheng Hooi; notes stock broke all-time high of MYR3.91 and has potential to move up toward MYR4.98, then MYR6.10. Pegs support at MYR3.88, then MYR3.42, with stop-loss at MYR3.40. Stock last +3.4% at MYR4.01. (ECH)