KUALA LUMPUR – The Suez Canal blockage is expected to have minimal impact on the earnings of glovemakers and the consumer sector for the financial year ending 2021 (FY21).
PublicInvest research said its preliminary estimates suggested that a two-week disruption has minimal impact, although the European market accounts for 30%-40% of glovemakers’ sales volume.
“However, an extended disruption might worsen the container shortage situation, resulting in revenue recognition delay for glovemakers,” it said in a research note today.
Apart from that, the potentially higher freight charges should not erode the glove players’ margins as shipping costs are usually borne by buyers.
While efforts by glovemakers typically recognise revenue when goods are delivered to the ports, however, they are expected to secure a vessel booking prior to transporting the goods to the port, hence, the vessel shortage situation might result in revenue recognition delays.
On dividend payout, the firm said the world’s leading manufacturer Top Glove has committed to a special dividend payout of 20%, bringing its total dividend payout for the second quarter to fourth quarter to 70%.
“Based on our earnings forecast, Top Glove should pay a total dividend per share (DPS) of 84.3 sen for FY21, which would translate to an attractive dividend yield of 16.4%.
“We expect Hartalega and Kossan to pay out a DPS of 47.4 sen and 39.7 sen, respectively in FY21, representing a dividend yield of 5.0% and 11.5%.
“Thus, we maintain our overweight call on rubber gloves,” it added.
Meanwhile, recovery in global economic activities is expected to be supported by Covid-19 immunisation and stimulus packages, which will likely boost consumer confidence.
Given the importance of Egypt’s Suez Canal to global trade, the blockage will cause further disruption to the already strained global supply chain.
“However, we are of the view that it will not have a substantial impact on earnings for companies under our coverage.
“Based on our calculation, we estimate that the earnings impact for Kawan Food and QL Resources to be minimal, at 1.0% should there be a delay in shipments for two weeks as both companies remain geographically diversified. Note that Europe accounts for 9.0% of Kawan’s FY20 sales,” it said.
Through the firm’s estimate, Homeritzs is one the three furniture companies to have the largest impact, given its bigger presence in Europe compared to Poh Huat and Wegmans.
“We understand that the European market accounts for 18% of Homeritz’s sales, and we estimate that its earnings would fall by 1.0%. We upgrade our consumer sector view from neutral to overweight,” it added. – Bernama, March 29, 2021
