Keeping their hands in the glove sector

Barber Elyas Yunoos, 36 wearing face shields with all disposable items such as apron, gloves and gowns cleaning up all his hair cutting tools following instructions and SOPs by health ministry due to the Covid-19 pandemic before reopening of their shop at Lebuh Acheh in George Town. - ZHAFARAN NASIB/The Star/ 08 June 2020

PETALING JAYA: Hartalega Holdings Bhd and Top Glove Corp Bhd, the top-two largest glove makers in the world, are having separate events this week that will offer investors direct insight into the companies business prospects.

With a combined market capitalisation of over RM100bil, the two companies hold oversize sway on market sentiment.

Since the outbreak of the Covid-19 pandemic, their share prices have led gains on Bursa Malaysia.

This was on the back of a strong quarterly earnings growth, boosted by strong demand and higher selling prices as the world scrambled to stock up on the vital protective gear for their frontliners.

The order visibility of glove makers is robust, CGS-CIMB Research said in a note on Friday, while average selling prices (ASPs) are expected to remain elevated at least for another year.

But despite this bullish outlook, the pressure is rising for glove makers to justify their lofty valuations.

Anxious investors are tracking the Covid-19 vaccine development closely, while investment in new glove-making capacities is likely to curb future price hikes.

These concerns contributed to the recent pullback in glove makers’ stock prices from their recent peaks in early August.

One equity research firm, last week, had even downgraded its target price for Top Glove by half, triggering a fresh round of sell-off that quickly spread to other glove counters.

Top Glove came out strongly to defend itself, spending over RM200mil over the past three days to buy back its own shares.

For Shahril Othman, a 40-year-old creative manager who in July opened his first share trading account, the wild swing in the stock market is quite daunting as a novice investor.

“I think glove makers will continue to do well this year, given the current pandemic situation, ” he said.

Local retail investors were a major force in driving the FBM KLCI from its low in March, as the index outperformed many of its regional peers, thanks to the meteoric rise of the glove makers.

Participation by retail investors has hit a record high this year, filling the void as foreign funds retreated.

“A lot of people have made a lot of money on glove stocks, but some are anxious about their investment, especially after the recent plunge, ” Shahril said.

Tomorrow, Hartalega will be holding its first ever virtual AGM.

The company is expected to use this opportunity to update shareholders on its business prospects in the current financial year.

Shares in Hartalega, which closed at a record high of RM20.50 on Aug 3, was last traded at RM12.44 on Friday.

That is nearly a 40% drop in just barely a month.

Investors will be looking for some kind of reassurance from the management before they rekindle their love affair with glove stocks.

Hartalega, in August, reported a 134% increase in net profit to RM220mil, or 6.5 sen share in the first quarter ended June 30.

Consensus analysts’ estimate has put its full -year profit at RM1.75bil, or 53 sen a share, largely on expectations that earnings will increase substantially in the coming quarters on strong demand and rising product prices.

Meanwhile, Top Glove is scheduled to release its fourth-quarter results ended Aug 31 on Thursday.

Expectations are high for Top Glove to deliver, especially after its executive chairman Tan Sri Lim Wee Chai on Friday said in a statement that the company was confident of robust growth.

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