Sri Trang 'undervalued' after listing of glove subsidiary: UOB

Singapore

STRONG interest in glove makers has boosted overall trading volumes on Bursa Malaysia to a new record, but investors looking for a glove play that still offers good value could consider Sri Trang Agro-Industry (STA).

The Thailand-based rubber producer is up 144 per cent this year, following the listing of its glove maker unit Sri Trang Gloves Thailand (STGT).

STA, which closed on Thursday at S$1.10, now has a market capitalisation of S$1.69 billion. But that is dwarfed by the value of STGT, which ended the day at 80.25 baht (S$3.50) and is now valued at 111.45 billion baht (S$4.86 billion).

STA owns 56 per cent of STGT. That stake at current prices is worth 62.41 billion baht or S$2.72 billion.

"I think the market is currently undervaluing STA because there is too much discount on its share price compared to STGT's share price," said UOB Kay Hian analyst Thunya Sutavepramochanon.

For investors who fear the run in STGT's share price could be a short one, Ms Thunya said there should be "no worry" as far as the second half of the year is concerned. That is because management has revealed it has booked glove orders till the second or third quarter of 2021.

In addition, she said, STA projects long-term glove demand in emerging countries to be solid due to the present low glove consumption per capita in comparison to that of developed countries such as the United States.

STA, too, is expected to see an improvement in its financials. UOB Kay Hian expects STA's Q2 earnings to be weaker than previously projected due to the surge in raw material prices from May to June, which has pressured the rubber industry's gross margins.

However, the brokerage says STA's earnings for H2 are likely to double from the first half of the year as local raw material prices are now declining on seasonally larger market output. STA will also record "huge earnings contributions" from STGT, which has benefited from an increase in the average selling prices of rubber gloves.