SINGAPORE – The recent drop in stock prices by Malaysian rubber glove manufacturers is “unjustified”, said an analyst who predicts higher stocks.
Shares of Top Glove, the world’s largest producer of rubber gloves, fell 17.7% this year at the close of Monday. Its smaller pairs, Hartalega, Supermax and Kossan, fell between 18% and 30%.
In comparison, the FTSE Bursa Malaysia KLCI benchmark index fell 0.9% in the same period.
The team at Top Glove, the world’s largest glove manufacturer, checks the production of latex gloves in a waterproof testing room at one of the company’s factories in Selangor, Malaysia, on February 18, 2020.
Samsul Said | Bloomberg | Getty Images
“We are maintaining our overweight option in the industry as we believe the recent fall in stock prices is unjustified,” wrote Ng Chi Hoong, an analyst at Malaysian investment bank Affin Hwang, in a report on Monday.
The decline in Malaysian glove stocks 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 sales prices due to lower demand, as more people are being vaccinated worldwide, Ng said.
In addition, Top Glove’s plans to list in Hong Kong – its third stock listing after Malaysia and Singapore – have also raised concerns that the company is raising funds in anticipation of a weaker outlook, he said.
But those concerns are likely to ease, Ng said. Here are your target prices for Malaysian glove stocks.
Affin Hwang target prices for Malaysian glove stocks
| Stocks | Monday closing (Malaysian ringgit) | Target price (Malaysian ringgit) | Upside |
|---|---|---|---|
| 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 glove sales prices is not sustainable and predicts a 30% to 35% drop in prices in 2022. Even so, prices are likely to remain above pre-pandemic levels for the next two to three years. at least, he said.
This is partly because 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 agreed with the report by consultancy Frost and Sullivan and commissioned by Top Glove, which projected that the demand for disposable gloves would increase by an average of 15% per year for the next five years.
This growth in demand would come along with a 20% annual increase in supply in the coming years, said Ng.
Top Glove plans to list in Hong Kong
Another event that boosted Malaysia’s recent glove stock price actions is the planned third listing of Top Glove in Hong Kong.
The company said last month that it applied for a “dual primary listing” in Hong Kong, which could raise up to 7.7 billion ringgits ($ 1.87 billion). She said she will keep her current primary list in Malaysia and the secondary listing in Singapore.
Investors reacted negatively to news of concerns that the additional listing would dilute Top Glove’s earnings per share.
Still, Ng maintained its “buy” rating for Top Glove and its Malaysian peers. He said the drop in stock prices has brought valuations to levels that are “too cheap to ignore”.
The analyst added that, compared to their international peers, Malaysian glove manufacturers are delivering higher dividend yield and better return on equity – a measure of financial performance.
Top Glove reported on Tuesday an increase in quarterly earnings to 2.87 billion ringgit ($ 695 million) in the three months ended in February, from 115.68 million ringgit ($ 28.03 million) a year behind.
The company said global demand for gloves remains “strong”, with the Covid pandemic spurring an increase in the use of gloves and greater awareness of hygiene.