PETALING JAYA: As weekly Covid-19 infections surpassed 20,000 cases, investors scooped up beaten-down glove stocks, not minding the fact that many of these companies are loss making and are undercut by competitors from China and Thailand.
Shares of the world’s largest glove maker, Top Glove Corp Bhd
, chalked up over 18% in gain within just one week.
Hartalega Holdings Bhd’s share price hit the highest level in 17 months at RM2.75, while Kossan Rubber Industries Bhd’s shares also rose to 21-month high of RM1.88.
Global oversupply and intense pressure on average selling prices (ASPs) of gloves have not reduced investors’ renewed appetite in glove stocks, even though it remains to be seen whether this latest surge in infections will be sustained and boost glove sales.
Rakuten Trade head of research Kenny Yee cautioned investors not to be “hasty” amid the sudden craze for glove stocks.
“The sudden interest in glove stocks is the result of several factors, which include the spike in Covid-19 cases.
“In addition, the sector also witnessed a turnaround in the third-quarter results season, where some players also saw narrowing losses,” he told StarBiz.
Yee called this latest round of glove stock surge as “rotational play”.
“Investors may consider glove stocks for trading purposes but they must be vigilant,” he said.
The rally in glove stocks lifted the Malaysian stock market’s overall trading volume yesterday to a high of 4.81 billion shares, amounting to RM3.02bil.
The Healthcare Index, which includes all Big Four glove stocks, was the best performer as it rose by 3.21%, surpassing FBM KLCI’s marginal gain of 0.19%.
Top Glove emerged as the most active stock on Bursa Malaysia, only to be followed by smallish glove maker Careplus Group Bhd.
The Top Glove counter briefly touched an intra-day high of RM1.01 per share but by market close, it was up by 6.7% to 96 sen.
A total of 337.2 million shares changed hands in a single day.
Careplus, on the hand, surged by almost 33% yesterday to 46.5 sen. About 213.7 million shares changed hands. Interestingly, both glove makers were loss-making.
Top Glove recently posted a net loss of RM926.6mil in the financial year ended Aug 30, 2023 (FY23).
It is also noteworthy that the company suffered its largest quarterly loss in the final quarter of FY23.
Meanwhile, Careplus reported a net loss of RM9.3mil for the first quarter ended Sept 30, 2023.
Hartalega, which is the largest listed glove maker by market capitalisation, saw its shares rising by 2.23% to RM2.75 apiece.
The Kossan counter rose by 4.44% to RM1.88, while Supermax Corp Bhd’s share price increased by almost 10% to RM1.01.
The global glove manufacturing landscape has changed tremendously post-Covid-19.
The sector, which used to be dominated by a handful of Malaysian players, has seen the emergence of new players not just in the country but also globally.
The intensifying competition from Chinese and Thai players who make cheaper gloves caused the pricing power of Malaysian glove makers to diminish.
The regional competition is hurting the margins of Malaysian glove manufacturers and unfortunately, the situation may persist over the next 12 to 18 months.
Earlier this month, CGS-CIMB Research said Malaysian glove makers are still being undercut by US$3 to US$4 per 1,000 pieces, prolonging the challenges in passing on cost escalations.
It also said that the profitability of local glove players, measured by earnings before interest, tax, depreciation and amortisation per 1,000 pieces, may settle at a new normal given the eroding pricing power.
In addition, elevated glove inventories following pandemic-led stockpiling is limiting strong upside to volume growth in the near term.
This could cap the improvement in industry utilisation rates, stated the research house.
