The current growth prospect should not be viewed similar to pre-Covid-19 as the supply and demand is at equilibrium before the demand shock
By SHAZNI ONG / Pic By MUHD AMIN NAHARUL
GLOVE-and healthcare-related stocks was in the spotlight as investors were bullish over the reopening of economic activities and ample liquidity which saw some 10.3 billion units traded despite the rise in tensions between the US and China.
The market saw 10.31 billion securities traded valued at RM6.73 billion yesterday as the FTSE Bursa Malaysia KLCI (FBM KLCI) closed at 1.15% or 16.89 points higher to 1,490.14 led by glovemakers like Top Glove Corp Bhd and Hartalega Holdings Bhd, and Tenaga Nasional Bhd.
This came after 9.04 billion units valued at a whopping RM9.31 billion were traded last Friday.
Affin Hwang Investment Bank Bhd analyst Ng Chi Hoong believed the increase in the glove counters’ share prices was driven by the strong earnings prospect due to strong demand for gloves arising from the Covid-19 outbreak.
“The rubber glove sector is one of the few sectors in Malaysia likely to deliver positive earnings growth for 2020. We believe expectations for strong earnings growth are driving their share prices.
“It is hard to determine how much of the price increases are due to speculation as everyone has a different expectation on growth with some being more bullish and some are less,” he told The Malaysian Reserve yesterday.
Ng noted the positive momentum is likely to continue as the pandemic continues without a vaccine or cure.
“Without a vaccine or cure, we don’t think the demand for gloves will taper off. Delivery lead-time has increased to 12 months, which is significantly higher than the 30-45 days pre-Covid-19.
“The glove sector no doubt is one of the best performing sectors in Malaysia for 2020, but the de-rating catalyst will likely be a cure for Covid-19, in our view.
“We should not view the current growth prospect similar to pre-Covid-19 as the supply and demand was at equilibrium before the demand shock. So the question of whether a correction is long overdue is an ‘invalid’ question,” he said.
In relation to that, Hartalega and Top Glove saw their market capitalisation spiked since the beginning of the year.
As of press time yesterday, Hartalega is ranked the sixth-largest capitalised counter on Bursa having a market value of RM42.45 billion. The company was positioned at the 26th spot with a market capitalisation of RM18.48 billion at the beginning of the year.
Top Glove, the world’s largest rubber glove maker, is now the seventh-biggest market capitalisation stock on Bursa, having a market value of RM40.5 billion, surging almost three-fold in price since early this year. The company was at the 34th spot valued at RM12.03 billion on Jan 1, 2020.
The rally in Top Glove and Hartalega has mainly been due to rising demand for protective equipment during the Covid-19 pandemic.
Between the period of March 19 and May 29, Top Glove’s share price rose from RM5.85 a piece to RM13.30, while Hartalega’s share price doubled from RM6.33 to RM12.54.
Top Glove’s shares closed yesterday at 16.84% or RM2.24 higher to RM15.54, while Hartalega closed 5.1% or 64 sen higher to RM13.18.
“With infection cases still trend- ing higher, demand for gloves will remain robust. Hence, we are expecting strong earnings growth momentum in the coming quarters.
“We have had an ‘Overnight’ call on the sector since the beginning of the year, and are still keeping it as it is.
“We have ‘Buy’ calls on all four gloves stocks, Hartalega, Top Glove, Kossan Rubber Industries Bhd and Supermax Corp Bhd. Top Glove and Kossan are our top buy picks, due to their higher incremental capacity for 2020 relative to its peers,” Ng added.
Supermax closed at 25 sen higher at RM7.95 yesterday and was priced at RM1.37 at the beginning of the year. Kossan closed 43 sen higher at RM9.13 yesterday. The counter was priced at RM4.15 at the start of the year.
Other healthcare stocks gained yesterday with the Bursa Malaysia Healthcare Index rising 5.35% or 122.85 to 2,419.10. Adventa Bhd had the largest gain, rising 29.5% or 52 sen to RM2.28.