ANALYSTS: HANG ON TO GLOVE STOCKS
Share prices can climb further, backed by high ASPs amid ‘supernormal’ demand
IS the frenzy for glove stocks on Bursa Malaysia waning or are there still upsides to the share prices? Some industry observers believe interest in Top Glove Corp Bhd, Hartalega Holdings Bhd and other glove makers remains intact given their “huge” earnings prospect amid the “supernormal” demand due to the Covid-19 pandemic.
Affin Hwang Capital said glove makers were expected to register stronger performance in the second half of this year, even after posting record profits in the second quarter.
It said glove makers had guided that they were able to raise selling prices by another 10 to 50 per cent in the third quarter.
“Given that the current lead times for normal orders have stretched to more than 18 months, we believe that the elevated ASPs (average selling prices) can at least sustain until June next year.
“New entrants are likely to start production only in the second half of next year while existing players are operating at utilisation rates of more than 95 per cent. Thus, the overall supply is still insufficient to meet demand,” it added.
Global Market Insights said its study had shown the size of the surgical glove market would exceed US$4 billion by 2026, with a compounded annual growth of 10.5 per cent.
Meanwhile, industry observers said it was not a surprise that glove makers’ share prices had reacted negatively to news of possible Covid-19 vaccines.
Affin Hwang said although the United States Centre for Disease Control and Prevention had announced it planned to start distributing vaccines from November, the overall availability would be relatively scarce.
It would likely be made available only to healthcare professionals, essential workers and those in the high-risk group.
“Notably, these potential vaccines have yet to complete Phase 3 trials and, hence, it is highly unlikely that they will be made available to the public.”
Affin Hwang maintained its “overweight” call on the glove sector as it believed that there was still upside to the current share prices as they did not reflect the latest ASPs.
Affin Hwang’s top picks are Top Glove and Hartalega.
“We like Top Glove due to its exposure on the spot market, and also its role as one of the industry’s price leaders.
“For Hartalega, we believe that its earnings in the coming quarters will see a sharp increase. This is because its ASPs were below market rate in the first half as it had locked in its sales prior to the outbreak of the Covid-19 pandemic,” it added.