Credit Suisse still positive on glove sector due to affordable valuation, higher dividends

Credit Suisse still positive on glove sector due to affordable valuation, higher dividends
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KUALA LUMPUR (Jan 4): Despite the availability of vaccines seen around the globe, Credit Suisse is still positive on the glove sector due to its inexpensive valuation and higher dividends.

Credit Suisse’s co-head of ASEAN securities research and head of research in Malaysia Danny Goh said the glove sector is trading at less than five times P/E multiple versus its historic average of 17%, and is at present offering a dividend of more than 10%.

“Thus, in terms of valuation and dividends point of view, gloves do provide very good value at this point of time,” said Goh, at Credit Suisse's 2021 ASEAN Conference media briefing today.

Based on feedback from the glove makers, Goh said the average selling price is still trending upwards on a quarter-on-quarter basis, noting that 2021 “earnings is pretty much already in the bag”.

“While the pandemic does pose some question marks on how long demand and selling prices could continue to stay firm, but if we were to rely on the feedback of some of the glove makers, the forward orders will last them well into 2022,” he added.

From this perspective, he noted that glove stocks do seem defensive at this point of time, given that it is one of the few sectors that is seeing positive earnings momentum, offering very high dividend yield and trading at very low valuation relative to history.

As at noon break today, the big four rubber glove makers have wiped out RM13.65 billion worth of market capitalisation on Bursa Malaysia, due to the strong selling pressure that is possibly no thanks to the short selling ban that has been lifted as of today.

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Lam Jian Wyn