Uptrend on the cards for glove counters

KUALA LUMPUR (Sept 13): While the economy has seen a sharp downturn due to the COVID-19 pandemic, the glove industry has bucked the trend surging beyond market expectations.

Malaysia which holds 65 per cent of the global glove market share has seen listed companies on the local bourse enjoying exponential hike in share price following stronger demand.

Since March up to mid-August, seven Malaysian companies namely Top Glove, Hartalega, Supermax, Kossan Rubber, Careplus Group, Rubberex and Comfort Gloves have seen RM80 billion being poured into the stock market.

Top Glove and Hartalega were among the top 30 companies listed on the FTSE Bursa Malaysia KLCI by market capitalisation, that have seen their price per earning (PE) ratio soar to more than 75 per cent throughout the period.

As for the other companies, the stock rise was led by Supermax which surged more than 1000 per cent in the duration.

The sharp increase in the PE ratio of each stock was indicative of an overbought position.

To reduce the impact of declining value as well as increase affordability for investors, companies often conduct share split exercise.

However, after Top Glove and Supermax conducted the share split, momentum shifted to pharmaceutical stocks driven by vaccine optimism as well as equity repositioning mainly by retail investors.

This caused the related stocks to experience a sharp decline since last week on weak buying sentiment, leading these companies to conduct share buyback to boost investors’ confidence as well as increase their equity holding.

It also raised questions as to whether the bull for glove counters has subsided.

Staging strong rebound after nine days of intense sell off

Over the past two weeks, glove counters have been under intense selling pressure driven by two main reasons.

According to an equity analyst, the main reasons were cashing out on the exponential gain as well as repositioning to other stocks especially pharmaceutical and technology.

“After nine trading days, the tables have turned again in favour of the glove counters following the halting over vaccine trial by UK based AstraZeneca due to complications as well as the continuous surge of COVID-19 cases globally,” the analyst said.

While the world is hoping for a vaccine for COVID-19 to be produced soon, she said pharmaceutical companies which have been in the race to come out with one, are experiencing hiccups.

On a two-week basis, the healthcare index which comprises glove makers, pharmaceutical and hospital players saw a drop of 25.17 per cent before staging a rebound of 9.15 per cent on Friday (Sept 11).

As the week ended, rubber glove stocks have dominated the top gainer segment, while being the main index, the FBM KLCI ended on a stronger note driven by robust performance by Top Glove and Hartalega.

Rakuten Trade Sdn Bhd research vice-president Vincent Low said the move was driven by bargain hunting in glove counters following the recent sell-offs.

"Glove counters have been oversold over the past week. In the coming week, we foresee that demand for glove stock will be on the rise, indicating a healthy correction,” he said.

Uptrend still on the cards

In terms of market capitalisation, Top Glove stands at RM62.97 billion, Hartalega (RM42.64 billion), Supermax (RM19.33 billion), Kossan Rubber (RM13.66 billion), Comfort glove (RM2.14 billion), Rubberex (RM1.46 billion) and Careplus (RM1.36 bilion).

Despite the latest slip due to recent sell offs, research houses are still optimistic on the future performance of glove companies as COVID-19 cases have yet to show signs of slowing down.

With health operating procedures in place as well as rising concern of another wave as winter season approaches, steady demand, and positive financial results indicate a stability for the sector.

“While retail investors especially are often following the trend be it buying or selling, we believe that glove companies are an asset to invest in as the pandemic will create a new norm, leaving demand for glove on a steady note,” said an equity analyst.