KUALA LUMPUR, Malaysia (July 7): Rubber glove makers briefly ceased operations in their Klang plants due to the Enhanced Movement Control Order (EMCO) in the area, causing shares in rubber glove counters to trade mixed this morning. At 9.28 a.m., Top Glove Corp Bhd’s shares were down 0.76 percent, or three sen, to RM3.91 per share, valuing the company at RM32.17 billion. Meanwhile, Supermax Corp Bhd’s stock was down 0.96 percent, or three sen, to RM3.11 per share, valuing the company at RM8.46 billion.
Hartalega Holdings Bhd, on the other hand, was up 1.27 percent or nine sen at RM7.15, giving the counter a market value of RM24.58 billion. Kossan Rubber Industries Bhd’s stock rose 0.33 percent, or one sen, to RM3.06 per share, giving the company a market capitalization of RM7.83 billion.
Comfort Gloves Bhd remained constant at RM1.94, Rubberex Corp (M) Bhd rose 0.6 percent or half a sen to 84 sen, while Careplus Group Bhd rose 1.2 percent or two sen to RM1.69.
Hong Long Investment Bank (HLIB) stated in a note that the shutdown will affect 23 of Top Glove’s plants (55 percent of its total capacity).
“Because Hartalega and Kossan’s factories are largely in Selangor, which is mostly under EMCO, we expect a greater impact on Hartalega and Kossan’s sales volumes.”
We see this as a modest setback for the glove sector, as [reduced] production levels will result in a global glove supply constraint in the near future. Malaysia is estimated to contribute for 60-65 percent of worldwide glove supply, according to MARGMA. We expect the short-term scarcity in glove supply to reduce the decline in glove ASPs in 2H21, as a partial counterbalance “It was observed.
Top Glove, Kossan, and Hartalega all had their earnings predictions lowered by the research firm. Top Glove and Kossan lowered their FY21 predictions by 6.1 percent and 8.6 percent, respectively, while Hartalega lowered its FY22 forecast by 9.2 percent. To accommodate for decreasing sales volume, lower earnings forecasts were made.
As a result, HLIB has reduced Top Glove’s target price (TP) to RM6.66 from RM6.72, Hartalega’s TP to RM13.74 from RM13.85, and Kossan’s TP to RM5.48 from RM5.54.
“We value the glove firms using their pre-pandemic five-year average PE multiple of (CY15-19), which is predicated on sustainable earnings in a post-super normal earnings environment, plus free cash flows (both discounted back to PV) earned during the boom period.”
This includes both post-pandemic earnings and strong profits achieved during the pandemic. “Our top pick remains Top Glove (buy, TP: RM6.66),” it stated, adding that it has kept its “buy” rating “Top Glove, Kossan, and Hartalega are summoned.
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Due to EMCO, glove manufacturers in Selangor temporarily shut down./n
