SINGAPORE – The recent drop in stock prices of Malaysian rubber glove manufacturers is “unjustified,” said an analyst predicting further stock gains.
Shares of Top Glove, the world’s largest producer of rubber gloves, are down 17.7% this year by Monday’s close. The smaller competitors Hartalega, Supermax and Kossan are down between 18% and 30%.
In comparison, the benchmark FTSE Bursa Malaysia KLCI Index fell 0.9% over the same period.
The staff of Top Glove, the world’s largest glove manufacturer, supervises 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 | Bloomberg | Getty Images
“We maintain our call for Overweight for the industry as we believe the recent fall in stock prices is not warranted,” Ng Chi Hoong, an analyst with Malaysian investment bank Affin Hwang, wrote in a report on Monday.
The fall in Malaysian glove stocks followed a significant jump last year, as the Covid-19 pandemic increased demand for medical gloves.
Factors hurting investor confidence in the stock include a possible drop in lower-demand glove sales prices as more people are vaccinated worldwide, Ng said.
In addition, Top Glove’s plans to go public in Hong Kong – the third stock exchange listing after Malaysia and Singapore – also caused concerns that the company is raising money in anticipation of a weaker outlook, he said.
But those concerns will likely allay, Ng said. Here are his target prices for Malaysia’s glove stocks.
Affin Hwang’s target prices for Malaysian glove stocks
| Shares | Closed on Monday (Malaysian ringgit) | Target price (Malaysian ringgit) | Upside down |
|---|---|---|---|
| Top glove | 5.04 | 10.10 | 100% |
| Hartalega | 9.70 | 5:00 pm | 75% |
| Supermax | 4.21 | 10.90 | 159% |
| Kossan | 3.66 | 9.30 | 154% |
Ask to stay above pre-Covid levels
The analyst said the rise in average glove sales prices is unsustainable and predicts a price drop of 30% to 35% in 2022. Still, prices are likely to remain above pre-pandemic levels for the next two to three years. he said.
That’s partly because the demand for gloves is expected to remain high in the coming years as the medical industry uses more personal protective equipment, Ng said.
He added that he agreed with the report by consulting firm Frost and Sullivan commissioned by Top Glove, which predicted that the demand for disposable gloves would increase an average of 15% per year over 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 development that has prompted the recent price action in Malaysian glove stocks is the planned third listing of Top Glove in Hong Kong.
The company said last month it had filed for a “dual primary listing” in Hong Kong that could fetch up to 7.7 billion ringgits ($ 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 over concerns that the additional listing would dilute Top Glove’s earnings per share.
Still, Ng has maintained his “buy” rating for Top Glove and his Malaysian colleagues. He said the fall in stock prices has lowered valuations to levels that are “too cheap to ignore.”
The analyst added that compared to their international counterparts, Malaysian glove makers deliver a higher dividend yield and better return on equity – a measure of financial performance.
Top Glove reported an increase in quarterly earnings to 2.87 billion ringgits ($ 695 million) for the three months ended February on Tuesday, from 115.68 million ringgits ($ 28.03 million) a year ago.
The company said global demand for gloves remained “strong” as the Covid pandemic fueled increased glove use and increased hygiene awareness.