Bursa Malaysia (KLSE) Stock Investment Portal

KUALA LUMPUR, Oct 21 -- With no signs of slowing down in new daily COVID-19 cases worldwide, the demand for medical gloves will remain elevated next year, said MIDF Research which has upgraded its call on the glove sector to “positive” from “neutral” previously.

The research house said mass testing is expected to continue in order to curb further pandemic spreading, thus increasing the use of medical gloves.

“Gloves will also be used as a protective and preventive gear. We expect that average selling prices (ASPs) are likely to remain high in financial year 2021 based on a base-case scenario of vaccine availability in mid-2021,” it said in a note today, adding that the administration of vaccines will also require the usage of gloves.

MIDF said the number of new Covid-19 cases has surpassed 400,000 globally even before the Northern Hemisphere enters winter and the surge in number of cases globally showed that the curve has not been flattened (it occurs as most economies reopened from strict lockdowns).

The number of new daily cases may continue to remain high as economies cannot afford another round of total lockdown.

The research house believed that demand for gloves would remain high into 2022 due to the organic growth of the industry, coupled with higher hygiene awareness.

“Since the pandemic, the demand for rubber gloves is expected to grow at a pace of over 20 per cent from about 10 per cent previously,” it said.

It also saw the potential for a higher weightage of glove counters in the FTSE Bursa Malaysia KLCI (FBM KLCI), noting that the market capitalisations of Supermax Corp Bhd and Kossan Rubber Industries Bhd have stayed above the RM20 billion mark.

Trading volume has also improved. MIDF said the 60-day average for Kossan is 17.06 million, and for Supermax 51.5 million, indicating decent liquidity.

“As such, they are likely to be included as FBM KLCI component stocks in the upcoming FTSE review in December.

“If and should the two stocks are included, the weightage of glove counters on the FBM KLCI may possibly increase to 30-40 per cent from about 15 per cent currently based on the latest market caps of the top four glove companies listed on Bursa,” it said.

Looking beyond the near-term surge in profits, MIDF expected that growth will be driven by organic growth in demand due to higher hygiene awareness, production capacity, product innovation and improvement in production processes.

Top Glove remains its top pick for the sector, which it has upgraded to “positive”. The research house maintained its “buy” recommendation on Top Glove with a new target price (TP) of RM10.96 (previously RM9.63).

It also maintained its “buy” recommendation on Supermax as it deemed it as a contender to be included into the FBM KLCI during the December review (TP of RM13.83 from RM12.43).

It upgraded Hartalega and Kossan to “buy” from “neutral”, since their ASPs will be catching up with that of Top Glove and Supermax. Its TP for Hartalega is RM22.96 from RM20.73 and for Kossan is RM10.02 from RM7.68.

At 11.03 am, Top Glove slid 35 sen to RM9.13, Supermax declined 42 sen to RM9.94, Hartalega fell 20 sen to RM18.84 and Kossan was 36 sen lower at RM7.77.

-- BERNAMA