KUALA LUMPUR (Aug 13): Glove bulls were jolted by newsflow showing commercial production of COVID-19 vaccine is not that far-fetched and it could be a reality in a matter of months.
On Tuesday, Russia revealed that it has granted regulatory approval on a COVID-19 vaccine.
The news was then followed by Indonesia President Joko Widodo’s announcement on Wednesday that the country began the third phase of a COVID-19 vaccine trial made by China’s Sinovac Biotech Ltd with a target to begin commercial production in six months.
As many as 1,620 volunteers are participating in the trial that began on Tuesday and supervised by the faculty of medicine at Padjadjaran University in Bandung in West Java. Once the vaccine clears the trials successfully, State-owned PT Bio Farma may begin production from January, according to Jokowi.
The news seemed to have exposed the downside of the glove counters that had rocketed to an all-time high with hefty premium on valuations. The concerns are that the anticipated strong growth on rubber glove consumptions might not materialise as the COVID-19 pandemic is contained once the vaccine is available.
Glove stocks, which have rallied over the past five months, were hammered with intra-day losses of more than 10% on Wednesday.
All seven glove counters were “gap down” at the opening bell, indicating the absence of buyers at the high price level. They managed to rebound from intra-day lows, still all ended the day with big losses (see chart).
The heavy selldown on Wednesday erased a total of RM23.1 billion worth of market capitalisation from the seven glove counters, of which RM21.83 billion was wiped out among the big four glove counters, namely Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd.
Some quarters commented that the selling was compounded by the lack of fresh catalysts to sustain the rally as share prices appeared to have factored in the most positive news.
Nevertheless, the double-digit fall in share prices was indeed negligible in comparison with the handsome gains that the glove stocks have made year to date.
The astonishing rally in Asian glove-maker stocks will extend further, as the coronavirus-led boom in demand shows no sign of abating, Citigroup Inc was quoted by Bloomberg as saying.
“Even with a vaccine, a structural step-up in glove usage is on the cards as the pandemic may well accelerate the narrowing of the gap between emerging-market and developed-market glove consumption,” Citigroup analyst Megat Fais wrote in a note on Tuesday.
Top Glove and Kossan Rubber can each climb by about 75% over the next 12 months as the pandemic drives unprecedented growth in sales and profits for the sector, the analyst wrote.
Citi’s Fais isn’t concerned by such blips, noting that the lead time on orders to Asian glove makers have lengthened to about 12 months from pre-COVID levels of one to two months, Bloomberg reported.
When contacted, EquitiesTracker head of research Lim Tze Cheng attributed the plunge to news that Russia had approved a COVID-19 vaccine after less than two months of human testing.
Lim, however, said it is yet to be seen if the Russian vaccine could pass the final stages.
Looking forward, Lim told The Edge that glove makers are expected to post stellar financial results for the next two quarters. The earnings numbers would be the fuel for any further rally.
However, he raised the question of whether glove makers’ strong earnings growth could last in the next two to three years. Lim cautions that the development of an effective vaccine and alternative forms of treatment which would reduce the number of COVID-19 cases will in turn affect glove demand.
Top Glove is expected to release its fourth quarterly results by October, while Kossan is slated to announce its earnings performance by the end of this month.