Glovemakers remain a potential “dividend play” and continue to attract investors despite the price correction the companies are experiencing.
After experiencing a price rally amid the pandemic, profit-seeking investors are now adopting a cautious outlook on glove counters, following disruptions in productions after Covid-19 outbreak among employees in some of their factories and the roll-out of vaccines to manage the pandemic.
Malacca Securities Sdn Bhd head of research Loui Low said the price for glove manufactures are currently trading at lower highs and lower lows suggesting the sustained selling pressure.
“But moving forward, people might view this as a potential dividend paymaster stock. If they are able to pay between 6% to 7% dividend yield, that will translate to long-term investors holding them.
“For now, short term wise, we believe the share price rally has taken a pause,” he told The Malaysian Reserve yesterday.
The top four glove counters comprising Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd have lost some RM64 billion in market value since Oct 19 as their share prices saw a correction.
Loui said the availability of the Covid-19 vaccine coupled with the government’s plan to procure the vaccine has affected market players pricing, hence pegging lower price-earnings multiple for them.
“At the end of the day, it will depend on what is the average selling price trend of gloves moving forward despite some funds switching from glovemakers to recovery themes,” he added.
AmInvestment Bank Bhd has maintained its ‘Neutral’ view on the sector as the valuations for glove companies under its coverage (Top Glove, Kossan and Hartalega) are fully reflected in the companies’ earnings outlook.
The investment bank noted the average selling prices (ASPs) of gloves will begin to ease in the first half of 2021 after the strong increase seen over the past nine months, which are already priced in.
“Share prices of all of the glove companies in our coverage have reached their fair values. While we believe that glovemakers’ fundamentals remain solid for the next few years, they offer limited upside at their current share price. Hence, we advise investors to accumulate at lower levels,” the bank noted in a strategy report yesterday.
After portraying a major role in helping to contain the Covid-19 spread, several glovemakers have now fallen prey to the virus with an outbreak among their employees hitting operations and denting investor sentiment in turn.
Kossan became the latest to be hit by the virus spread in the country with a total of 427 workers including eight Malaysians from the glove manufacturer have been infected by the virus.
Compared to Oct 19, Kossan’s share price has been trading 37.4% or RM3.04 lower to close at RM5.09 yesterday.
The company has lost RM7.79 billion in market capitalisation as it was valued at RM13.02 billion yesterday compared to RM20.81 billion three months ago.
Hartalega has also confirmed 35 employees were tested positive for the virus and most are asymptomatic.
In the last three months, Hartalega’s share price has dropped 34.5% or RM6.56 to close at RM12.44 yesterday, valuing the company at RM42.64 billion.
Hong Leong Investment Bank Bhd maintains an ‘Overweight’ call on rubber gloves companies with Top Glove as its top pick with a ‘Buy’ call on the stock and target price (TP) of RM11.05.
The research firm also put a ‘Buy’ call on Hartalega and Kossan with a lower TP of RM19 from RM24.10 for Hartalega and RM8.37 from RM9.56 previously for Kossan.
Top Glove has lost RM21.5 billion in market capitalisation as it was valued at RM55.49 billion yesterday from RM77 billion three months ago.
It was trading 30% or RM2.83 lower compared to October to close at RM6.77 yesterday.
Source: The Malaysian Reserve