KUALA LUMPUR (Sept 3): Glove bulls seem to be getting exhausted on Bursa Malaysia. Selling pressure on the glove counters continues from last month, pulling some of them lower from their peaks.

The frenzied buying interest has been dampened by the fact that some analysts have turned cautious on the premium valuations and have downgraded the sector.

The current values of three of the big four glove makers are lower now compared with a month ago. Hartalega Holdings Bhd has lost 25.07% from its all-time high that hit last month while Kossan retreated 21% from its record high of RM19.18.

Top Glove Corp Bhd, the second largest company by market capitalisation on Bursa Malaysia, dropped 8.17% from the peak in August. [see chart]

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An analyst, who asked not to be named, said the euphoria for glove stocks may have toned down amid increasing signs that a vaccine for COVID-19 could be developed soon.

"Now that the noises on the vaccines are getting louder, it has been impacting the performances of rubber glove makers," said the analyst, noting that these counters have been consolidating over the past two to three weeks.

"Perhaps the euphoria on this rubber glove play has toned down. This year, next year... it may still be looking okay for the rubber gloves, but going forward, it may be another story," said the analyst.

While the glove industry is lacking fresh catalysts now, the analyst believes that the fundamentals of the rubber glove makers are still intact. "However, it may not be as good as people expect it to be," the analyst added.

On Wednesday, among the big four glove makers, Hartalega shed RM1.10 or 6.68% to close at RM15.36, while Kossan Rubber Industries Bhd lost 68 sen or 4.3% to close at RM15.12.

Top Glove fell 42 sen or 1.58% to RM26.08, while Supermax Corp Bhd declined 46 sen or 2.1% to RM21.40. Supermax's warrants were also featured on the list of top losers.

Rubberex Corp (M) Bhd was also down 22 sen or 3.83%, Comfort Gloves Bhd dropped 15 sen or 3.23% and Careplus Group Bhd fell seven sen or 2.01%.

In a strategy note, CGS-CIMB Research said it has replaced Top Glove with Public Bank Bhd as one of its top three picks. Kossan and Supermax have also been removed from the research house's top picks.

"This is to reflect our view that investors are likely to rotate in the later part of the year to cyclical sectors, which will benefit from the recovering economy post-COVID-19," said CGS-CIMB.

Two other research houses have meanwhile downgraded the glove sector to "neutral" from "overweight".

JF Apex Securities Bhd attributed its decision to downgrade to the deceleration of new cases of COVID-19 and the faster-than-expected development of the vaccine.

Another reason, it said, was that the momentum of rising average selling price (ASP) for gloves might not be as strong as initially thought as more companies were venturing into the medical glove business.

Also, the demand for gloves was tapering as a result of less social activities, said JF Apex in a note on Aug 27.

AmInvestment Bank on Aug 25 also downgraded the glove sector to "neutral" as the research firm believed that the valuations for glove companies under its coverage had been fully priced in.

"We think that the ASP will begin to taper off in [the first quarter of] 2021 after the expected increase in ASP until end-2020, which has been priced in. Share prices of all of the glove companies in our coverage have exceeded their target prices," said AmInvestment.

Meanwhile, CGS-CIMB has also downgraded Duopharma Biotech Bhd and Pharmaniaga Bhd, saying the share prices of these pharmaceutical companies had run ahead of fundamentals.

The share prices of these two companies were also affected by profit-taking activities yesterday after their recent gains.  

Pharmaniaga slipped 29 sen or 5.15% to RM5.34, while Duopharma was down 14 sen or 3.84% at RM3.51. Another pharmaceutical company, Kotra Industries Bhd, dropped 11 sen or 3.09% to RM3.45.

The Bursa Malaysia Healthcare index was the biggest decliner among sector indices yesterday, closing 114.14 points or 2.72% lower at 4,089.07.

Edited by S Kanagaraju