SINGAPORE – The recent fall in share prices of Malaysian rubber glove manufacturers is “unjustified,” said an analyst who makes a further upside down forecast for the stocks.
Shares of Top Glove, the world’s largest producer of rubber gloves, have fallen 17.7% this year as it was close to Monday. The smaller peers Hartalega, Supermax and Kossan have fallen between 18% and 30%.
In comparison, the FTSE Bursa Malaysia KLCI Index fell 0.9% in the same period.
Employees of Top Glove, the world’s largest manufacturer of gloves, will take a look at the production of latex gloves in a waterproof test room at one of the company’s factories in Selangor, Malaysia, on February 18 , 2020.
Samsul said Said | Bloomberg | Getty Images
“We maintain our fat call on the sector, as we believe the recent decline in share prices is uneven,” wrote Ng Chi Hoong, analyst at Malaysia Investment Bank Affin Hwang, in report Monday.
The decline in Malaysia’s glove stock came after a big jump last year when Covid-19 pandemics sparked demand for medical gloves.
Factors hurting investors’ confidence in the stocks include a possible fall in the selling prices of gloves on lower demand as more people get vaccinated around the world, he said. Ng.
In addition, Top Glove’s plans to list in Hong Kong – its third stock listing after Malaysia and Singapore – prompted concerns that the company is raising money in anticipation of a weaker outlook, he said.
But those concerns are likely to be eased, Ng said. Here are his target prices for Malaysian glove stocks.
Affin Hwang target prices for Malaysian glove stocks
| Stockings | Close Monday (Malaysian ringgit) | Target price (Malaysian ringgit) | Above |
|---|---|---|---|
| Top Glove | 5.04 | 10.10 | 100% |
| Hartalega | 9.70 | 17.00 | 75% |
| Supermax | 4.21 | 10.90 | 159% |
| Kossan | 3.66 | 9.30 | 154% |
Demand to stay above pre-Covid levels
The analyst said the jump in average retail prices of gloves is not stable, and predicts a 30% to 35% fall in prices in 2022. However, prices are likely to remain above pre-release levels for the next two or three years at least, he said.
That’s partly because demand for gloves is expected to continue to rise in the coming years as the medical department uses more personal protective equipment, Ng said.
He said he agreed with the report by the advisory group Frost and Sullivan and was commissioned by Top Glove, which predicted that demand for disposable gloves would rise by an average of 15% per year for the next five years.
Such growth in demand would be accompanied by a 20% annual increase in supply over the next few years, Ng said.
Top Glove plans to list in Hong Kong
Another recent development that has driven price action in Malaysia’s glove stocks is the third planned listing at Top Glove in Hong Kong.
The company said last month that it had applied for a “double primary listing” in Hong Kong that could raise up to 7.7 billion ringgit ($ 1.87 billion). They said they will maintain its main current enlistment in Malaysia and secondary enlistment in Singapore.
Investors reacted negatively to the news of concerns that the additional listing would weaken Top Glove earnings per share.
However, Ng has maintained its “buy” rating for Top Glove and its Malaysian counterparts. He said the fall in share prices has brought valuations down to levels that are “too cheap to ignore.”
The analyst compared their international peers to Malaysian glove makers delivering higher continental yield and better parity yield – a measure of financial performance.
Top Glove on Tuesday reported an increase in quarterly profits to 2.87 billion ringgit ($ 695 million) for the three months ended February, from 115.68 million ringgit ($ 28.03 million) a year ago.
The company said global demand for gloves remains “strong,” with Covid’s pandemic driving an increase in glove use and a higher hygiene awareness.