PETALING JAYA: Following the exodus of retail investors from the stock market towards the fourth quarter of 2020, the normalising market movements are seeing a resurgence of a healthcare theme play, especially in the rubber glove makers.
Their share prices have seen a correction of up to 50% recently, but renewed interest among investors has driven the counters back up, amidst the rising number of coronavirus disease (Covid-19) cases globally. However, the sustainability of the rally remains in question.
JF Apex Securities Research said the market is divided on the sustainability of the sector’s price run as a result of earlier-than expected vaccine availability, especially in China.
“We believe the market will start pricing in normalised earnings and look beyond the peak earnings for glove players as the hype on the sector could soon fade.
“Whilst we opine that glove demand could still be resilient post-pandemic, underpinned by hygiene awareness, we highly doubt the sustainability of high average selling prices (ASPs), ” the research house said in a report yesterday.
As stock prices run ahead of fundamentals, JF Apex advised investors to take profit on glove counters and opt for better alternatives and bargain-hunt other sectors which offer more attractive value and risk-reward propositions, such as oil and gas, industrial and transportation.
The Employees Provident Fund (EPF), which is the largest pension fund in the country, has been actively trading healthcare-related stocks and eventually raised its holdings in some of the companies.
MIDF Research analyst Ng Bei Shan said the recent interest in glove companies could be attributed to the correction seen earlier this month, whereby prices for some of the counters had come off by 20% to 30% from their respective peaks.
“This is also supported by earnings visibility and expected earnings growth in the coming quarters.
“The buying interest in glove counters may turn into a more defensive play, given the earnings visibility due to the long lead time and deposits collected by glove companies.
“The advanced collection of deposits has also boosted the balance sheet and cash flow of glove companies, which means that they are in a good position to expand their business as well as continue their dividend policies, ” she said, adding that the revenue and earnings of glove makers are expected to register growth in the coming few quarters due to the tight supply of gloves globally.
Lead time remains high, rising to more than a year for some companies, said Ng.
CGS-CIMB Research analyst Walter Aw said the demand and ASPs of rubber gloves remain on the rise.
On the expectations of normalising earnings next year, he said it would depend on the rate of the ASP decline and when it would happen.
“If it’s gradual, earnings will not normalise that fast and may still remain elevated, ” he said.
Meanwhile, JF Apex also pointed out that the sudden surge of beta for the glove counters suggests that the sector is experiencing a change in investor’s risk appetite as it is no longer perceived as ‘defensive’ in nature, especially when the market turns bearish, ” it said.
Retail investors went on a final lap on Bursa Malaysia yesterday in conjunction with the last day of the moratorium, pushing the FBM KLCI up 7.18 points at 3.20pm before a selldown sank it below the crucial 1,500-point mark at 1,497.78 points.
The benchmark index managed to recover its losses and finished marginally higher by 0.92 points at 1,504.82 points just nine minutes before the end of the trading day.
Hartalega Holdings Bhd and Top Glove were the two top losers in the 30-stock index after their share prices retreated 80 sen and 17 sen, respectively.
Hartalega closed at RM16.20, while Top Glove settled at RM8.30.
Market breadth was negative with 696 decliners against 313 advancers while 420 counters remained unchanged.
A total of 5.64 billion shares, valued at RM2.64bil, changed hands yesterday.
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