Kossan, Supermax to raise glove counter weightage to 40% of KLCI


THE weightage of glove counters in the 30-stock FTSE Bursa Malaysia KLCI (FBM KLCI) could increase by 30% to 40% from 15% currently if Supermax Corp Bhd and Kossan Rubber Industries Bhd are included in the index in the next review.

MIDF Amanah Investment Bank Bhd (MIDF Research) said the two glovemakers are likely to be included in the KLCI component stocks in the upcoming review if based on their market capitalisation.

“Market capitalisations of Supermax and Kossan have stayed at the RM20 billion mark. The trading volume has also improved as the 60-day average for Kossan is 17.06 million shares and 51.5 million for Supermax, indicating decent liquidity,” it said in a report last week.

The two companies are likely to replace Genting Bhd and Genting Malaysia Bhd, whose market capitalisation has fallen sharply to RM11.63 billion and RM11.59 billion respectively as of last Friday due to the severe impact of the Covid-19 pandemic and corporate exercises which has led to investors selling.

Kossan and Supermax’s market valuation can remain high as demand-supply fundamentals of their business remain very favourable thus keeping investors invested in the sector on prospects of good earnings.

The research house noted that according to its channel checks, the supply for medical gloves is expected to remain tight while the average selling prices (ASPs) are still in an upward trajectory after the jump seen in the first half of the year (1H20).

It added ex-factory prices are projected to grow by 30% to 40% in the third quarter 2020 (3Q20) compared to 2Q20 with another increase of 40% to 50% in 4Q20.

“As such, the glovemakers are likely to beat their own records seen in the last quarter in the upcoming two quarters,” it said.

MIDF Research said the demand and ASPs for gloves will likely to remain elevated in 2021 due to the surge in the number of Covid-19 cases globally.

The research house forecast demand for gloves and ASPs to continue to chart a steady trend despite some stabilisation of prices anticipated in 2022.

“Demand for gloves will remain high in 2022 due to the organic growth of the industry, coupled with higher hygiene awareness. Since the pandemic, the demand for rubber gloves is expected to grow at a pace of over 20% from about 10% previously,” MIDF Research stated.

MIDF Research added that based on its estimates, the dividend yield for Top Glove Corp Bhd in the financial year 2021 (FY21) and FY22 is 5.1% and 2.3% respectively.

The dividend yield for Hartalega Holdings Bhd in FY21 and FY22 is forecast at 2.1% and 1.9% respectively, and 2.2% and 1.4% for Kossan’s FY21 and FY22 and 3.1% and 3% for Supermax over the same period.