KUALA LUMPUR (July 7): The big four glove counters, Hartalega Holdings Bhd, Top Glove Corp Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd, continue their climb to new peaks this morning.
At 11.40am, Hartalega was trading at RM16.74, up 24 sen after it hit a day's high of RM17.08, Top Glove gained 38 sen to an all-time high of RM20.34. Meanwhile, Supermax gained 12 sen, trading at RM10.48, which is also a new peak, and Kossan Rubber, which has just announced a land acquisition for capacity expansion, rose 46 sen, trading at a fresh peak of RM10.84.
The craze for glove shares has never waned amid the continued rise in the number of new Covid-19 infections globally, for example the second wave of infections that has emerged in several countries, such as Australia, South Korea and Germany.
The number of Covid-19 cases soared to 11.74 million globally, with 4.56 million active cases, and 540,655 deaths recorded.
RHB Research analyst Alan Lim commented in today’s research note that gloves demand should continue to surge throughout 2Q20 as Covid-19 continues to spread, given the need to protect frontline healthcare workers, for instance in the US, as Covid-19 cases in the country remain high.
“Based on our channel checks, distributors have very low stock levels — they are sufficient to cover expected sales for the next two weeks. This is much lower than the two-month stock level average during pre-pandemic times. [More than] 50% of Kossan’s sales are to the US,” he said.
Lim expects the East Asian giant’s capacity to increase by 19 billion pieces per annum (ppa) in 2021 due to incoming supply from China mainly from Blue Sail Medical and Intco Medical Technology.
“From 2019-2022, we expect China’s capacity to increase by 47 billion ppa. However, there is low oversupply risk, as we expect demand to rise by 46.7 billion ppa over the same period,” Lim added.
He maintains ‘buy’ call on Kossan with a higher DCF-derived target price of RM13 (from RM10.10 previously), 26% upside and circa 1% yield.
“Separately, gloves demand is still increasing, and we expect inventory levels to remain extremely tight. We raise our earnings estimates and target price due to higher average selling prices (ASPs).
“Our new target price implies 28.8x FY21F P/E, or a 20% discount against the sector’s average forward P/E. This is justified, given its smaller market cap and lower liquidity,” he wrote in a research note.
Lim, however, cautioned that the key downside risks of his call on Kossan included the faster-than-expected global availability of an effective Covid-19 vaccine, lower-than-expected sales volume/US dollar, and higher-than-expected raw material prices.