Glovemakers’ bull run takes a break

Investors’ interest switch to the smaller glovemakers which hold on to their gains quite well


RUBBER glovemakers’ shares experienced volatile price action yesterday as the counters experienced profit-taking after hitting historic highs while the industry mouthpiece said exports will remain strong well into next year.

In the final hour of the afternoon trading yesterday, glovemakers experienced heavy profit-taking thus dragging the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) to a day low of 1,577 points before late buying saw the benchmark retrace some of the losses to close 7.7 points lower for the day at 1,598.75 points, and after hitting an intraday high of 1,617 points.

“The price action yesterday could be a sign of a reversal which starts with profit-taking activity after the sharp rise in prices in the past two trading weeks. Investors’ interest has switched to the smaller glovemakers yesterday which held on to their gains quite well,” said a trader at a local brokerage.

Volatile price action saw Top Glove Corp Bhd shares hit an intraday high of RM25.16 sen and a low of RM20.50 before closing 3.5% or 84 sen lower at RM23.16 while Hartalega Holdings Bhd closed 5.03% or 90 sen lower at RM17 after hitting a high of RM18.86 and a low of RM15.28 in intraday trade.

Supermax Corp Bhd reached an all-time high of RM17.80 yesterday before falling to a low of RM12.52 in day trade before closing 0.5% or eight sen lower at RM15.90.

Kossan Rubber Industries Bhd bucked the trend closing 6.30% or 80 sen higher at RM13.50 after trading with a high/low range of RM14.94 and RM12.

Smaller glovemakers like Comfort Gloves Bhd and Careplus Group Bhd also experience the price volatility but close higher at RM3.84 (up 41 sen) and RM1.76 (up 27 sen).

Meanwhile, the Malaysian Rubber Glove Manufacturers Association (MARGMA) is expecting the world consumption of gloves to reach about 330 billion pieces, out of which, close to 67% will be exported from Malaysia.

“The local glove industry is targeting to export about 250 billion pieces of gloves to 190 countries across the world this year,” MARGMA president Denis Low (picture) told The Malaysian Reserve yesterday.

Local producers exported 55 billion pieces in the first three months of this year, he added, and this figure can have an upside of about five to six billion pieces extra going into the subsequent quarters.

Low noted the demand is so phenomenal that glove manufacturers have their orderbook full until next year. Scaling up production is constrained by labour shortages.

“We are facing a crunch on workers and we seriously need more workers, both local and migrant. We believe locals may now come forward to work, thus, easing the dependency on foreign workers.

“We have transformed and automated the industry to a large extent, but then, a certain segment of the production cycle still requires people to be involved,” he stated.

Demand for gloves will continue to be very strong until 2021, Low said.

RHB Investment Bank Bhd analyst Alan Lim said the global glove shortage has worsened as Covid-19 cases in the US surged 24% on a month-to-date basis to 3.27 million.

“As Covid-19 cases remain high in the US, demand for gloves should stay exceptionally strong, given its importance in protecting healthcare workers.

“Since the US is the world’s biggest glove consumer, its stubbornly high number of cases means that demand for gloves should continue to rise,” he said in a research note on Comfort Gloves yesterday.

Glove demand due to the pandemic has increased and depleted global stock levels.

“Our estimates show global stock levels could have declined by an additional 2% to 10.8 billion pieces. This is enough for 15 days of demand (previously 15.2 days) and much lower than the pre-pandemic 60-day average,” Lim said.

The firm’s channel checks revealed the shortage of certain raw materials used to manufacture gloves, capping near-term supply.

“We increase our FY21-FY23 average selling price (ASP) assumptions by 2%-7%. We estimate the impact of higher ASPs should exceed the additional logistics cost expected from the US Food and Drug Administration’s latest import alert,” Lim said.

He expects Comfort Gloves to add six production lines in financial year 2021. Upon completion, its production capacity will be 14% higher at 5.9 billion pieces per annum.

“The company’s earnings growth outlook remains positive as we expect glove demand to continue its annual 8%-10% growth due to higher hygiene awareness globally post-Covid-19,” he added.

The firm has raised Comfort Gloves earnings estimates and a target price of RM4.80 from RM3.18 previously, on higher ASPs, based on the calendar year 2021 forecast price-earnings ratio of 25 times, which is at a 30% discount against the peer average.