SINGAPORE – The recent decline in the stock prices of Malaysian rubber glove manufacturers is “unjustified,” said an analyst who predicts a further rise for stocks.
Shares of Top Glove, the world’s largest producer of rubber gloves, fell 17.7% this year at the close on Monday. His smaller teammates Hartalega, Supermax and Kossan have fallen between 18% and 30%.
In comparison, the FTSE Bursa Malaysia KLCI benchmark fell 0.9% in the same period.
Staff at Top Glove, the world’s largest glove manufacturer, will check the production of latex gloves in a watertight test room at one of the company’s factories in Selangor, Malaysia, on February 18, 2020.
Samsul Said | Bloomberg | Getty Images
“We maintain our call for overweight in the sector as we believe the recent fall in stock prices is not justified,” Ng Chi Hoong, an analyst at Malaysian investment bank Affin Hwang, wrote in a report on Monday.
The decline in Malaysian glove stocks followed a significant leap last year when the Covid-19 pandemic increased demand for medical gloves.
Factors that hurt investor confidence in stocks include a potential drop in glove sales prices with lower demand as more people are vaccinated globally, Ng said.
In addition, Top Glove’s plans to list in Hong Kong (its third listing after Malaysia and Singapore) also raised concerns that the company will raise funds in anticipation of a weaker outlook, he said.
But those concerns are likely to subside, Ng said. These are your target prices for Malaysian glove stocks.
Affin Hwang’s target prices for Malaysian glove stocks
| Stocks | Monday Closing (Malaysia Ringgit) | Target price (Malaysian ringgit) | Other way round |
|---|---|---|---|
| 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 the average selling price of gloves is unsustainable and predicted a 30% to 35% drop in 2022. However, prices are likely to remain above pre-pandemic levels during the next two or three years at least He said.
In part, demand for gloves is expected to continue 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 consulting firm Frost and Sullivan and commissioned by Top Glove, which predicted that demand for disposable gloves would increase by an average of 15% annually over the next five years.
This growth in demand would come along with a 20% annual increase in supply in the coming years, Ng said.
Top Glove is scheduled to appear in Hong Kong
Another development that has driven recent price action on Malaysian glove stocks is the third planned listing of Top Glove in Hong Kong.
The company said last month that it had applied for a “dual primary listing” in Hong Kong that could raise up to 7.7 billion ringgit ($ 1.878 billion). He said he will keep his current main list in Malaysia and the secondary list in Singapore.
Investors reacted negatively to the news about 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 counterparts. He said falling stock prices have reduced valuations to levels “too cheap to ignore.”
The analyst added that, compared to its international counterparts, Malaysian glove makers offer higher dividend yields and a better return on equity, a measure of financial performance.
Top Glove on Tuesday reported an increase in quarterly earnings to 2.877 million ringgit ($ 695 million) over the three months ended February, from 115.68 million ringgit ($ 28.03 million) for the year past.
The company said global demand for gloves remained “strong,” with the Covid pandemic leading to increased glove use and increased hygiene awareness.