Threat of Covid-19’s 2nd wave fuels price rally in glovemakers

Share price performance of glove stocks will depend on how soon a vaccine for Covid-19 is found as the recent surge in demand for gloves is mainly due to the pandemic


GLOVEMAKERS’ counters rallied on the news of new coronavirus infection clusters in many cities across the world, including in Wuhan where the virus first emerged.

The fear of a second wave of Covid-19 infections drove investors back into healthcare-based stocks, especially into local rubber glovemakers which are expected to benefit from strong demand for their products.

Top Glove Corp Bhd led the gainers, soaring 9.3% or 68 sen to RM7.99, followed by Comfort Gloves Bhd which surged 29.71% or 52 sen to RM2.27.

Rubberex Corp M Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd jumped 27.75% or 48 sen to RM2.21, 15.1% or 45 sen to RM3.43 and 7.69% or 45 sen to RM6.30 respectively despite the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) falling marginally by 2.38 points to 1,379.9 point at close yesterday.

Investors also piled into smaller glove producers like Careplus Group Bhd which rose 30 sen or 50.85% to 89 sen.

Other healthcare-related product producers like LKL International Bhd also benefit from the buying, rising some 18 sen or 47% to 56 sen. Adventa Bhd, which has sold its glove-making business also gained, rising 27.5 sen or 30% to RM1.19.

AffinHwang Investment Bank Bhd’s analyst Ng Chi Hoong believes the optimism was partly due to the release of business update announcement by Riverstone Holdings of its first-quarter (1Q20) numbers.

“They are the first glove company to release their results, post-Covid-19 outbreak. They are guiding for a positive outlook for both the company and the sector for 2020 on the surge in demand for rubber gloves on Covid-19. The cost of raw materials is also declining,” he told The Malaysian Reserve yesterday.

Ng noted the share price performance (to a certain extent earnings outlook) of glove stocks will depend on how soon a vaccine for Covid-19 is found as the recent surge in demand for the gloves is mainly due to the pandemic.

“Some glove manufacturers are already accepting orders for goods to be delivered by the end of 2020, six to eight months in advance, compared to the one to two months lead time required in early 2020.

“We are also expecting stronger earnings quarter-on-quarter and year-on-year for 1Q20.

“We believe the earnings of glovemakers are likely to be stronger in the 2Q and 3Q, given the Covid-19 outbreak was mainly contained in China during most of the 1Q, before spreading to other countries in 2Q,” he said.

AffinHwang is overweight on the sector, with its top ‘Buy’ picks being Top Glove (target price (TP) of RM8.70) and Kossan (TP of RM7).

Wuhan reported its first cluster of coronavirus infections since a lockdown on the city — the epicentre of the outbreak in China — was lifted a month ago, stoking concerns of a wider resurgence, according to Reuters.

On the local front, the government on Sunday extended the Conditional Movement Control Order until June 9 as it continues its commitments and efforts in curbing the pandemic here.