Bursa healthcare gauge continues fall amid selling pressure on glove stocks

Bursa healthcare gauge continues fall amid selling pressure on glove stocks
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KUALA LUMPUR (Sept 9): Bursa Malaysia’s healthcare index fell the most in percentage terms in morning trades today as investors continued to dump healthcare stocks.

At 11.15am, the healthcare index fell 91.18 points or 2.54% to 3,502.92. 

The healthcare gauge includes rubber glove manufacturers. The big four rubber glove stocks Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd were among the top losers of the local bourse as they have suffered heavy losses at the morning trade today. 

At 11.30am, Kossan led the losses and fell 7.68% or 96 sen to RM11.54 while Supermax fell 4.88% or 41 sen to RM8. 

Hartalega was down 2.65% or 36 sen at RM13.24 while Top Glove slipped 4.58% or 35 sen to RM7.29. 

Top Glove and Hartalega are also FBM KLCI constituents. 

In a note Sept 8, CGS-CIMB Research analyst Walter Aw wrote that the research house had maintained its "add" call on Top Glove, with an unchanged target price of RM9.20.

Aw said the "add" call is premised on Top Glove as the key beneficiary of the current supply-demand dynamics in the glove sector due to Covid-19 as it is the largest glove maker globally by capacity, with a production capacity of 85.2 billion pieces per annum as at Aug 31. 

Owing to Covid-19, Top Glove continues to witness robust glove demand as its sales lead time for nitrile glove is now more than 20 months until end of calendar year 2021, up from 18 months in June this year. 

Despite increased newsflow on potential discovery of a Covid-19 vaccine, Top Glove believes that glove usage globally will remain strong even in the event of discovery of a Covid-19 vaccine, mainly due to increasing healthcare and hygiene awareness in developing countries, as well as increased usage in both medical and non-medical sectors. 

“Top Glove expects further average selling price (ASP) increase for nitrile gloves at +20% m-o-m [month-on-month] in September and October 2020, and potentially another +10% m-o-m in November 2020. 

"Besides, Top Gloves also sees ASPs for latex gloves increasing 5% m-o-m in September and October 2020. This is supported by Top Glove recently receiving more spot orders until end-CY20 as it expects to allocate up to 30% (from 20-25% previously) of its total capacity for spot orders going forward,” Aw noted. 

Aw expects Top Glove ASP to grow 22% for the financial year ending Aug 31, 2020 (FY20) and to increase 45% for FY21, before easing by 36% for FY22.  

Despite the increase in raw material prices, in particular for nitrile butadiene due to shortage of supply, Top Glove has said it is not overly concerned about the spike in raw material prices as the quantum of ASP hikes will be more than sufficient to offset it. 

Overall, Aw has maintained his earnings per share projection for Top Glove for the periods between FY20 and FY22. 

Surin Murugiah