Mixed views on glove makers’ upside potential

While most analysts tracking the glove sector remain bullish, there is some caution that certain stocks may have already been overbought at this stage.

PETALING JAYA: Glove stocks have generally enjoyed a good run in the past couple of months and analysts are now divided on whether there is still room for upside on stock prices at this stage.

Notably, the current outbreak of the Covid-19 pandemic has in the past few months created a spike in the demand for personal protective equipment (PPE), of which gloves are a part of. This, in turn, has been causing investors to chase glove stocks, pushing prices higher.

While most analysts tracking the glove sector remain bullish, there is some caution that certain stocks may have already been overbought at this stage.

“Following the outbreak of Covid-19 in China in late January, we upgraded our call on Hartalega Holdings Bhd to an ‘outperform’, as we were of the view that the situation could worsen and benefit the glove makers, ” Public Investment Bank said in a report to clients.

It noted that Hartalega’s share price has since rallied over 40% and while it is still optimistic over Hartalega’s prospects in the near term due to the surge in demand for gloves, it believes that “the positives have been largely priced-in”. As such, the research house has downgraded Hartalega to a “neutral”, with an unchanged target price of RM7.40. Hartalega last traded at RM7.25, down 42 sen.

In its report on another glove player, Kossan Rubber Industries Bhd, RHB Research noted that Covid-19 had indeed caused a global demand spike for gloves and “in view of their scarcity globally, it believes an average selling price (ASP) increase is imminent”.

It noted that the trend of rising ASPs probably just started in March and believes that there is still room for more glove price increases as demand remains “exceptionally high”. “As a result, we have raised the financial year 2020 (FY20)-FY22 earnings by 3% to 8%.”

In its report on Kossan entitled “The best is yet to come, ” RHB said it was maintaining its “buy”call on the company’s stock but has ascribed a higher target price of RM6.50 on it, in line with higher earnings estimates. Kossan last finished at RM5.34, down 16 sen.

Meanwhile, a rubber manufacturing sector report by JP Morgan noted that the worldwide Covid-19 pandemic’s depth and duration had topped the global bank’s expectations. As such, it remains bullish on glove manufacturers. JP Morgan said the margins of the glove boys will be pushed higher than earlier anticipated.

It has revised upwards net profit assumptions for Top Glove Corp Bhd by up to 42% for FY20-FY22, and up to 27% for Hartalega over the period of FY21-FY22.

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