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SINGAPORE – The recent drop in share prices for Malaysian rubber glove makers is “unjustified,” said an analyst who predicts a further rise for the shares.
Shares of Top Glove, the world’s largest producer of rubber gloves, fell 17.7% this year as of Monday’s close. Its smaller peers Hartalega, Supermax and Kossan are down 18-30%.
By comparison, the benchmark FTSE Bursa Malaysia KLCI index fell 0.9% in the same period.
Staff from Top Glove, the world’s largest glove manufacturer, verify 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 | fake images
“We maintain our call to overweight the sector as we believe the recent drop in share prices is unwarranted,” Ng Chi Hoong, an analyst at Malaysian investment bank Affin Hwang, wrote in a report on Monday.
The drop in Malaysian glove stocks followed a significant jump last year when the Covid-19 pandemic boosted demand for medical gloves.
Factors hurting investor sentiment in the stocks include a possible drop in glove sales prices due to lower demand as more people around the world are vaccinated, Ng said.
In addition, Top Glove’s plans to list in Hong Kong, its third listing of shares after Malaysia and Singapore, also raised concerns that the company is raising funds in anticipation of a weaker outlook, he said.
But those concerns will likely ease, Ng said. These are your target prices for Malaysian glove stocks.
Affin Hwang target prices for Malaysian glove stocks
| Stocks | Monday close (Malaysian ringgit) | Indicative price (Malaysian ringgit) | Upside down |
|---|---|---|---|
| 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% |
Requires staying above pre-Covid levels
The analyst said the rise in average glove sales prices is not sustainable and predicts a price drop from 30% to 35% in 2022. Still, prices will likely remain above pre-pandemic levels over the years. next two or three years at least. he said.
That’s partly because 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 the consultancy Frost and Sullivan and commissioned by Top Glove, which projected that the demand for disposable gloves would increase by an average of 15% annually over the next five years.
Such growth in demand would come along with a 20% annual increase in supply in the coming years, Ng said.
Top Glove plans to list in Hong Kong
Another development that has driven recent price actions in Malaysian glove stocks is Top Glove’s third planned listing in Hong Kong.
The company said last month that it requested a “dual primary listing” in Hong Kong that could raise up to 7.7 billion ringgit ($ 1.87 billion). It said it will maintain its current primary listing in Malaysia and secondary listing in Singapore.
Investors reacted negatively to the news on concerns that the additional listing would dilute Top Glove’s earnings per share.
Still, Ng has maintained its “buy” rating for Top Glove and its Malaysian peers. He said falling stock prices have lowered valuations to levels that are “too cheap to ignore.”
The analyst added that, compared to their international counterparts, Malaysian glove manufacturers are generating higher dividend yields and better return on equity, a measure of financial performance.
Top Glove on Tuesday reported an increase in quarterly earnings to RM 2.87 billion ($ 695 million) for the three months ending in February, from RM 115.68 million ($ 28.03 million) a year ago. .
The company said that global demand for gloves continued to be “strong,” and that the Covid pandemic led to an increase in glove use and increased hygiene awareness.
