KUALA LUMPUR (July 16): Rising hopes that a vaccine has been found for Covid-19 caused a knee-jerk share-dumping yesterday of the four biggest glove companies on the local stock exchange — the Big Four glove stocks — all of which have enjoyed a meteoric rise in their share prices in the last four months.
The heavy selldown throughout the trading day erased a collective RM10.5 billion worth of market capitalisation (market cap) from the four counters, namely Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd.
The glove bulls view the drop as a healthy pullback for correction before scaling higher. However, those with bearish views believe that there is a lack of fresh catalyst to continue fuelling the share price rally, and that the upcoming quarterly result season would test the upward momentum.
While Top Glove has slipped a spot back to being the fourth largest company on Bursa Malaysia in terms of market cap, all the Big Four glove stocks remain among the stock exchange's top 30 heavyweights.
Hartalega led the pack as the top loser. The world’s leading nitrile glove maker’s share price fell 8.24% or RM1.40 to close at RM15.60, followed by Kossan, which declined 5.93% or 80 sen to RM12.70. Top Glove retreated 5.9% or RM1.36 to RM21.80, while Supermax dropped 5.3% or 84 sen to RM15.06.
Selling pressure was less on the smaller glove makers — Comfort Gloves Bhd, Rubberex Corp (M) Bhd and Careplus Group Bhd.
Careplus closed unchanged at RM1.76 while Comfort Gloves slipped 1.56% or six sen to RM3.78 and Rubberex dipped 1.64% or six sen to RM3.59.
News that the US biotech firm Moderna would enter the final stage of its human trials for its Covid-19 vaccine on July 27, after promising early results were published in a journal, raised hope that the pandemic would be contained more effectively, sooner than later.
“It is anyone’s guess which direction the glove counters would go,” said Philip Capital Sdn Bhd chief investment officer Ang Kok Heng. He sees the fall in share prices as a “correction” rather than the beginning of a bearish trend on glove counters.
He noted that the vaccine may be one indicator for the glove counters’ direction, but there are still many “positive” indicators for gloves such as continuous dire situations in the US, and the rise in the average selling prices of rubber gloves.
“If selling prices (of rubber gloves) are still good, then it is still not the end of the game yet,” Ang said.
Affin Hwang Investment Bank Bhd deputy group managing director Yip Kit Weng, meanwhile, said the research firm still has an overweight recommendation on the sector amid expectations that the Covid-19 cases will continue to rise globally, especially in the US, which would then continue to drive demand for rubber gloves.
“As there is still a shortage of glove supply, we believe that manufacturers can continue to raise selling price, which will help improve manufacturers' margins. Without a publicly available vaccine, we believe selling prices for gloves can sustain at this elevated level,” Yip added.
While the fundamentals of the glove counters appear to be compelling, RHB Investment Bank Bhd regional equity research head Alexander Chia said buyers should take caution on glove stocks as their prices have “moved up a lot”.
“Unexpected outcomes, such as the vaccine news, is something we cannot predict,” said Chia.
All said, there is no short of upgrades on the big four glove makers’ target prices.
Hong Leong Investment Bank Bhd (HLIB) is the latest to raise its earnings forecast and share target prices (TPs) for Top Glove to RM31.31, Hartalega to RM20.12 and Kossan Rubber to RM16.37 on expectations of higher average selling prices.
In a note dated July 15, HLIB analyst Farah Diyana Kamaludin said the research firm maintained its "overweight" call on the rubber glove sector with "buy" calls for Top Glove, Hartalega and Kossan shares.
According to CGS-CIMB Research, the Malaysian Rubber Glove Manufacturers Association (MARGMA) expects a robust 20% growth in rubber glove demand, reaching 330 billion pieces in 2020 due to the Covid-19 pandemic, which has led to higher usage in the medical and other non-medical sectors (such as food and beverages and retail).
"MARGMA expects the global glove shortage to linger until end-2021, premised on Malaysian glove makers having an average order backlog of six to eight months as well as growing severity of Covid-19 globally," said the stockbroking firm.
CGS-CIMB Research said MARGMA also estimates that current glove average selling prices range from US$80 (RM341.12) to US$160 per 1,000 pieces. The association expects selling prices to be sticky downwards, on anticipation of continued high usage of rubber worldwide.
"It is of the view that average selling prices could hold at these levels for the next six to eight months (the glove makers’ current average order backlog) given the acute shortage of gloves currently,” CGS-CIMB Research wrote in its latest note dated July 15, reiterating its "overweight" call on the sector.