Rubber glove shares lacklustre despite record-breaking earnings

Recent developments in vaccine formulation will affect the ASP of gloves as the urgency of glove orders would be reduced post-pandemic


GLOVE counters were lacklustre yesterday amid Top Glove Corp Bhd’s highest quarterly net profit of RM2.38 billion recorded in the first quarter of the financial year 2021 (1QFY21) and revenue of RM4.76 billion.

Top Glove’s share price jumps 15 sen or 2.19%, to RM6.99 yesterday at a market capitalisation of about RM57.29 billion.

Supermax Corp Bhd, which was recently elevated to the FTSE Bursa Malaysia KLCI, saw its share price increase two sen or 0.26% to RM7.77 valuing the group at RM21.14 billion.

Careplus Group Bhd’s share price jumps two sen or 0.77% to RM2.63 and Rubberex Corp (M) Bhd’s share price rose one sen or 0.59% at RM1.71.

However, Hartalega Holdings Bhd share slipped 30 sen or 2.05% to RM14.36.

Kossan Rubber Industries Bhd’s and Comfort Gloves Bhd’s share prices remained unchanged at RM5.82 and RM3.61 respectively.

AmInvestment Bank Research raised Top Glove’s FY21 earnings forecasts by 21% to RM7.9 billion after increasing its average selling price (ASP) assumption to US$80 (RM328) per 1,000 pieces, while reducing the average utilisation rate to 70% from 80%.

“We increased our FY21 ASP assumption following management’s guidance and also the fact that spot price has reached as high as US$150-US$180/1,000 pieces in recent months.

“The reduction in utilisation rate is to reflect the temporary closure of some factories due to Covid-19 screening and quarantine for its workers,” AmInvestment analyst Thong Pak Leng said in note.

Thong has made no changes to the research house’s FY22 to FY23 numbers.

Following its FY21 earnings revision, he expects Top Glove to pay a total dividend of 48 sen, translating into a yield of 6.9%.

Thong has maintained his ‘Hold’ call and fair value is unchanged at RM7.07 per share.

Meanwhile, massive expansion plans by glove companies in Malaysia and Thailand will provide additional 120 billion (+55%) pieces per annum of gloves by end of 2022, hence, he believes a short-term supply excess may come back into play in 2022.

“We also believe that recent progresses in vaccine formulation will affect the ASP of gloves as the urgency of glove orders would be reduced post-pandemic.

“Nonetheless, we hold the view that demand for gloves will remain stable post-Covid-19 due to wider adoption of glove usage from non-medical industries such as food and beverage, services and retail,” he added.

MIDF Amanah Investment Bank Bhd also increased Top Glove’s FY21E earnings estimates by +8.8% as its 1QFY21 earnings exceeded its previous expectation.

MIDF analyst Ng Bei Shan thinks that upcoming quarters will remain strong as demand continues to exceed supply, while Top Glove’s operations are expected to improve with the reopening of its plants in Meru, Klang.

“As such, we maintain our ‘Buy’ recommendation with an unchanged target price of RM10.96. FY21E dividend yield is attractive at an estimated 8%, while FY22F dividend yield is estimated at 3.2%.

“We make no changes to our FY22F earnings estimates,” she said. Looking ahead, she said ASP is expected to increase by about 30% quarter-on-quarter in 2QFY21. “Plus, Top Glove’s 4,636 employees, representing 90% of the 5,147 employees, who were previously tested positive for Covid-19 have been certified fit to work.

“All in, the company has tested 8,868 employees, of which 94% are ready to resume work after the quarantine period,” she explained.

She said production of the 28 closed factories are expected to recover in stages starting this week (starting with seven factories first), and is expected to be fully recovered in the next two to three weeks.

“On top of that, Top Glove is adding another 10% capacity to its production for the quarter. It will also increase its nitrile glove production as it was able to secure sufficient nitrile rubber for its production,” she added.