AmBank Research cuts manufacturing to neutral

PETALING JAYA: AmInvestment Bank (AmBank Research), which has downgraded the manufacturing sector to “neutral” for the next 12 months, prefers household product manufacturers over can makers.

It noted that household product manufacturers such as VS Industry and ATA IMS Bhd would benefit from the rising trend in trading up in the floor-care market, particularly due to their ties with a key customer in the segment which has a robust growth prospect and continuous innovation.

This key customer is also planning a slate of new product launches over the next few years, which is anticipated to keep box-build orders growth sturdy.

Meanwhile, the research house is negative on can makers as they are affected by rising cost pressures as average prices of raw materials such as aluminium, tin plate and paper roll which escalated by 12%, 5% and 8% in the first three quarters of this year against the same period last year.

This has been eating into the margins of local can makers including Kian Joo Can Factory. Apart from higher raw material costs, the group is also facing intensified competition in its corrugated carton space and looming competition for its tin and aluminum can industries due to upcoming capacities from other regional players.

AmBank Research expects Kian Joo to be impacted by higher labour costs in 2019 with the minimum wage policy in Malaysia and Vietnam as both its manufacturing businesses and contract packing services are labour-intensive.

“For chemicals manufacturing companies such as Luxchem Corp and Samchem Holding, the end-applications of their outputs are very diverse (general products) and their diversified, large customer base should mitigate supplier switching concerns and excessive reliance on client’s performance,” it added.

Nonetheless, the research house said the sector’s rating might be upgraded to “overweight” if the ringgit appreciates against the US dollar.

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