This is because the glove market is transitioning to the endemic phase from pandemic with glove price and demand expected to normalise

by S BIRRUNTHA / Pic by MUHD AMIN NAHARUL

THE glove sector stocks could come under the spotlight of investors as the world sees a fresh wave of Covid-19 infections after three months of decline but analysts warn the sector will not enjoy the same pricing power as in the past.

Daily Covid-19 cases are surging across the world with the European Union now the epicentre of the fresh wave while in Malaysia, Health DG Tan Sri Dr Noor Hisham Abdullah warned of another potential surge in Covid-19 infections in the coming weeks as the country sees an uptrend in new cases fuelled by a higher infectivity rate.

The infection rate, measured in R0 or Rt, has been increasing on a daily basis since Nov 6.

Areca Capital Sdn Bhd CEO Danny Wong warned not to rush to make a move into the sector as the glove market is transitioning to the endemic phase from pandemic with glove price and demand expected to normalise too.

He said the sector will then be subject to future estimates of the sales and average selling prices (ASPs), which contribute to the top-line revenue.

“The market is also trying to assess the rising costs of the glove sectors which are higher than the pre-pandemic levels.

“Another consideration is the environmental, social and governance factors including governance, labour issue and environmental factors,” Wong told The Malaysian Reserve (TMR).

Moving forward, global demand for gloves is estimated to grow steadily even with the availability of vaccines — from a pre-pandemic 10% per annum (pa) to 15% pa post-pandemic.

Hartalega Holding Bhd recently stated in its exchange filing that ASPs for gloves has been declining from the peak in the first half of the financial year due to increasing supply from major glovemakers as well as moderating demand because of customers adjusting inventories in view of declining selling prices.

It added that beyond the pandemic period, the glove market is expected to undergo a structural step-up in demand on the back of increased glove usage from emerging markets with low gloves consumption per capita and heightened hygiene awareness.

An analyst with a local brokerage firm said the rising virus infection numbers could help trigger some fresh interest in glove stocks as higher demand and production capacity increase in tandem and compensate for the loss in ASPs.

He said a surge in Covid-19 cases across countries in Europe could spark some bargain hunting in glove stocks that have been hit by a weak price outlook.

“We believe this fresh wave will ultimately reduce the pace of declining ASPs of gloves,” the analyst, speaking on condition of anonymity, told TMR last week.

The analyst said glove stocks may see some support from the transmissibility of the Delta as well as possible new Covid-19 variants in the future.

Rakuten Trade Research VP Thong Pak Leng was less optimistic on the sector as he does not expect a strong rebound in glove stocks.

He said their share prices have fallen in tandem with profit of glove companies due to lower ASPs.

“New capacities are coming in while the pandemic is in late stage, so we do not expect ASPs to improve in the next one to two years,” he told TMR.

He added that investors are expecting lower earnings for glove companies in financial year 2022 (FY22) and FY23, therefore there is less buying interest now.

The share prices of glovemakers on Bursa Malaysia have almost returned to their pre-pandemic levels after a trend reversal some 13 months ago as investors starting to take profits and analysts rerated the sector due to labour and Covid-19 pandemic issues amid falling ASPs.

Shares of Top Glove Corp Bhd, the world’s largest glovemaker, closed nine sen lower at RM2.31 last Friday, giving it a market capitalisation of RM18.5 billion.

Kossan Rubber Industries Bhd fell five sen to RM1.96 last Friday while Supermax Corp Bhd was down one sen to RM1.73 despite the return of its founder and substantial shareholder to its board.

Hartalega Holdings Bhd closed 19 sen lower at RM5.14, which took its market value to RM17.57 billion last Friday.

“The price trend for the companies is still down, with a slight rise in prices usually met by fresh selling. The price charts are suggesting the stock price can go even lower,” a chartiest with a local brokerage told TMR.

The Health Ministry, meanwhile, has ramped up the administration of booster shots to those aged 40 and above under the National Covid-19 Immunisation Programme.

Health Minister Khairy Jamaluddin Abu Bakar said those eligible for Covid-19 booster shots can now walk in to vaccination centres starting from today.