Glove bubble pops on stretchy valuations

-A +A

KUALA LUMPUR (June 6): The market craze for glove stocks continued despite the margin call curbs by brokerages early last week, which led to a massive sell-off.   

While some said the high valuations — historical price-earnings ratios (PERs) of over 100 times — were crazy, it did not stop research houses from giving higher target prices (TPs) for glove stocks in the wake of the Covid-19 pandemic.

For instance, Credit Suisse was the most optimistic, raising its TP for Top Glove Corp Bhd to RM23, representing another 40.4% upside against its last Friday’s closing price of RM16.38. Note that the stock has surged over 200% year to date (YTD).

Low-liner Careplus Group Bhd has even seen its share price surge close to 1,000% since early this year.

Will the strong buying interest cause a glove bubble? Are the hefty premium valuations justified? Would it be time to pick up glove stocks after a correction?

We speak to industry players, analysts and fund managers to find out what they think about the demand and earnings outlook, as well as the bull factors and key risks for the sector.  

As countries around the globe are racing to develop a vaccine against Covid-19, it remains to be seen how it will affect glove demand. In the post-pandemic era, new structural changes could also take place.

In our accompanying stories, we also take a look at how the wealth of the founders of glove companies has soared over the last five months; and the two businessesmen who have made handsome gains from their recent investments in a glove firm.

All of these are part of our cover story in the latest issue of The Edge Malaysia weekly.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.