The share prices of top glove makers Kossan Rubber Industries Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Top Glove Corp Bhd fell to fresh lows yesterday, following dizzying spikes in 2020. At 5pm, Top Glove, now a penny stock, closed 3.5 sen or 3.47% lower to 98 sen with a market capitalisation of RM8bil.
KUALA LUMPUR: Glove stocks will continue to face selling pressure in the near term due to “negative fundamental factors” in the sector, according to fund managers and equity analysts.
The share prices of top glove makers Kossan Rubber Industries Bhd
, Hartalega Holdings Bhd, Supermax Corp Bhd and Top Glove Corp Bhd fell to fresh lows yesterday, following dizzying spikes in 2020.
At 5pm, Top Glove, now a penny stock, closed 3.5 sen or 3.47% lower to 98 sen with a market capitalisation of RM8bil.
Tradeview Capital chief investment officer Nixon Wong pointed out that the glove sector is facing a “perfect storm” of intensifying competition among producers, reduced glove demand, high inventory levels on the buyers’ side, excess capacity on the sellers’ side, rising production costs, shortage of labour and thin margins.
Wong said with the reopening of international borders and the current excess glove capacity, there is less urgency for glove procurement by distributors and hospitals.
“Buyers also have high inventory levels due to stocking up on gloves in 2020 and 2021 and aggressive buying out of fear previously,” he said.
Wong noted that the increased glove production capacity from not only the existing producers but also some new glove making entrants in Malaysia, as well as major producers in China like Intco Medical, had resulted in lower average selling prices (ASPs) and thus, thinning profit margins.
“Rising material costs have also contributed to compressed margins,” he said, adding that he sees glove stocks continuing to face downward pressure in the next “two or three quarters”.
“Valuations (for glove stocks) have been suppressed, given the deteriorating fundamentals, which could remain under pressure, especially in a high inflation environment as well as the negative earnings outlook on glove makers’ margins,” added Wong.
Rakuten Trade head of equity sales Vincent Lau said while news of the US Federal Reserve hiking its benchmark interest rate by 0.75 percentage points might have affected sentiment, the outlook for the earnings of glove makers is not attractive.
Rakuten Trade head of equity sales Vincent Lau said while news of the US Federal Reserve hiking its benchmark interest rate by 0.75 percentage points might have affected sentiment, the outlook for the earnings of glove makers is not attractive.
Lau pointed out that research analysts are also negative on glove stocks and major glove makers had reported huge declines in earnings.
“Some of the smaller glove-related companies are reporting losses. The sector is facing overcapacity, rising costs of raw materials and ASPs remain challenging,” he said.
Lau said glove makers’ share prices are reverting to pre-pandemic levels, as their financial performances are seeing “normalisation”.
However, he noted that the major glove makers are “fairly cash rich” and overall, would still be “profitable”.
MIDF Research head Imran Yassin Md Yusof said investors might also have been spooked by news that Norway’s US$1.2 trillion (RM5.28 trillion) sovereign wealth fund has put Supermax under observation for two years, citing allegations of unacceptable risk that the company contributes to serious violations of human rights.
Reuters reported that Supermax will have to show it is addressing changes the fund wants to see over the two-year period, otherwise the fund could sell its holding in the company.
MIDF Research head Imran Yassin Md Yusof said investors might also have been spooked by news that Norway’s US$1.2 trillion (RM5.28 trillion) sovereign wealth fund has put Supermax under observation for two years, citing allegations of unacceptable risk that the company contributes to serious violations of human rights.
Imran pointed out that fundamentally, the glove sector is facing a lot of challenges.
“The demand for gloves is coming off and there is oversupply in the market due to a number of new entrants during the pandemic, including even companies that previously were not glovemakers.
“This has led to a fall in ASPs and that has really impacted the earnings of glove makers,” he said.
Imran added that there are expectations that glove makers are not going to do well in terms of earnings over the next one or two years, especially with the oversupply issue.
However, he noted that the major glove makers should still report profits, albeit at a much lower level than 2021.
“We do not see glove stocks falling significantly from the current levels.
“This could be a case where the selling is overdone, so this could present opportunities for investors who can stomach a bit of volatility – based on the valuation and earnings prospects,” he said.
