SINGAPORE – The recent drop in the share prices of Malaysian rubber glove manufacturers is “unjustified”, said an analyst who predicts a further increase in shares.
Shares of Top Glove, the world’s largest rubber glove maker, have fallen 17.7 percent this year since closing Monday. His smaller colleagues Hartalega, Supermax and Kossan fell between 18% and 30%.
In comparison, the FTSE Bursa Malaysia KLCI benchmark index decreased by 0.9% over the same period.
Top Glove staff, the world’s largest glove manufacturer, checks latex glove production in a sealed test room at one of the company’s factories in Selangor, Malaysia, on February 18, 2020.
Samsul Said | Bloomberg | Getty Images
“We continue to call for overweight in this sector, as we believe the recent decline in stock prices is unjustified,” Ng Chi Hoong, an analyst at Malaysian investment bank Affin Hwang, wrote in a report on Monday.
The decline in glove stocks in Malaysia followed a significant jump last year, when the Covid-19 pandemic increased demand for medical gloves.
Factors affecting investor confidence in stocks include a potential drop in glove selling prices at lower demand as more people are vaccinated globally, Ng said.
In addition, Top Glove’s plans to be listed in Hong Kong – the third largest share list after Malaysia and Singapore – have also raised concerns that the company is raising funds in anticipation of a weaker outlook, he said.
But these concerns are likely to ease, Ng said. Here are its target prices for glove stocks in Malaysia.
Affin Hwang’s target prices for glove stocks in Malaysia
| Inventories | Closing on Monday (Malaysian ringgit) | Target price (Malaysian ringgit) | Up |
|---|---|---|---|
| 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% |
Ask to stay above pre-Covid levels
The analyst said the increase in average glove selling prices is not sustainable and predicted a 30% to 35% drop in prices in 2022. However, prices are likely to remain above pre-pandemic levels at least in the next two months. three years, he said.
This is partly due to the fact that the demand for gloves is expected to remain high in the coming years as the medical sector uses more personal protective equipment, Ng said.
He added that he agrees with the report of the Frost and Sullivan consultancy and commissioned by Top Glove, which predicted that the demand for disposable gloves will increase by an average of 15% annually over the next five years.
Such an increase in demand would come along with an annual increase in supply of 20% over the next few years, Ng said.
Top Glove intends to be listed in Hong Kong
Another development that has driven recent price action in Malaysian glove stocks is the third planned list of Top Glove in Hong Kong.
The company said last month that it had requested a “dual primary listing” in Hong Kong, which could raise up to 7.7 billion ringgit ($ 1.87 billion). He said he would maintain his current main list in Malaysia and his secondary listing in Singapore.
Investors reacted negatively to the news of concerns that the additional listing would dilute Top Glove’s earnings per share.
However, Ng maintained his “buy” rating for Top Glove and his colleagues in Malaysia. He said lower stock prices had brought valuations to levels “too cheap to ignore”.
The analyst added that, compared to their international counterparts, Malaysian glove manufacturers offer higher dividend yields and better return on equity – a measure of financial performance.
Top Glove on Tuesday reported a quarterly increase in profit to 2.87 billion ringgit ($ 695 million) for the three months ended February from 115.68 million ringgit ($ 28.03 million) a year after.
The company said global demand for gloves continued to be “strong”, with the Covid pandemic boosting increased glove use and increased hygiene awareness.