Top Glove led the price resurgence with its stock price rising from 70 sen in mid-March to hit an intra-day high of 98 sen yesterday before settling one sen lower at 95 sen.
PETALING JAYA: Improving pricing power and belief that glove makers may have reached a sustainable inflection point have seen investors returning to the beaten down rubber glove counters.
A number of players have seen their share prices climb since last Thursday.
The world’s biggest glove manufacturer Top Glove Corp Bhd
led the price resurgence with its stock price rising from 70 sen in mid-March to hit an intra-day high of 98 sen yesterday before settling one sen lower at 95 sen.
Hartalega Holdings Bhd, Supermax Corp Bhd, Kossan Rubber Industries Bhd and Careplus Group Bhd had seen impressive gains over the period on heavy volumes, with analysts saying that the improved prices may not be a bear market trap.
Furthermore, Top Glove’s price jump came despite it having announced another loss-making quarter for the three months ended Feb 28 amounting to RM164.7mil, bringing its cumulative losses for the financial year ending Aug 31, 2023 to RM332.9mil.
The silver lining could perhaps be found in the fact that losses had not exacerbated but remained flattish compared with the previous quarter ended Nov 30, last year.
Chief investment officer at Tradeview Capital Nixon Wong said the run-up of glove stocks was triggered after Top Glove mentioned, in its results briefing, that the industry might have found a bottom and had been consolidating, with the exits of smaller players.
“Top Glove stated it is looking at a higher average selling price (ASP) from February, sending positive signals that the industry is beginning to turn around. Current ASPs have gone back to pre-lockdown levels,” Wong told StarBiz.
Rakuten head of equity sales Vincent Lau concurred with the sentiment, saying that investors in rubber glove companies could be moved to believe that the worst is over for the sector and it would be interesting to see if glove manufacturers may start to post improved financial performance going forward.
“Investors could be feeling that the prices of glove stocks have been oversold and hence they could offer attractive trading opportunities and price discovery of value in the counters. This is especially the case after Top Glove mentioned that selling prices are close to levels before the lockdowns,” he said.
Glove manufacturers concurred that the high-operating-cost environment and running down of accumulated glove stockpiles meant that industry players are focusing on their return to profitability in the long term.
Lau said once the customers of the companies have cleared existing stocks, the normalisation of demand and pricing would return, although the process would not happen soon, but more likely in 2024.
He did not perceive the current rise of prices in glove counters to be a bear trap as there is limited downside, reiterating that the recent price surge is due to investors on the hunt for good trading opportunities.
Looking at the longer term, Tradeview’s Wong said the increase in ASPs would help to alleviate the effects from the rising costs of raw materials. This, coupled with improved sales volume and plant utilisation should see players return to the black.
“Top Glove has mentioned that it would stop following the strategy of Chinese players in cutting prices. Investors may believe that this implies less intense competition,” he said.
On the flipside, he said the situation of a company increasing its ASPs while maintaining sales would likely happen if there is a high demand for gloves as seen in 2020 and 2021.
“Therefore in the current environment, if an increase in prices had not resulted in dampened demand, it would just mean that buyers would be pushed to cheaper alternatives,” Wong added.
