SINGAPORE — The current plunge in share costs of Malaysian rubber gloves makers is “unjustified,” mentioned an analyst who’s predicting additional upside for the shares.
Shares of Prime Glove, the world’s largest rubber gloves producer, have fallen 17.7% this 12 months as of Monday’s shut. Its smaller friends Hartalega, Supermax and Kossan have dropped between 18% and 30%.
As compared, the benchmark FTSE Bursa Malaysia KLCI Index fell 0.9% in the identical interval.
Employees of Prime Glove, the world’s greatest glove maker, examine on the manufacturing of latex gloves in a watertight take a look at room at one of many firm’s factories in Selangor, Malaysia, on Feb. 18, 2020.
Samsul Mentioned | Bloomberg | Getty Pictures
“We’re sustaining our Chubby name on the sector, as we imagine the current decline in share costs is unjustified,” Ng Chi Hoong, an analyst at Malaysian funding financial institution Affin Hwang, wrote in a Monday report.
The decline in Malaysian glove shares adopted a major bounce final 12 months when the Covid-19 pandemic boosted demand for medical gloves.
Elements hurting investor confidence within the shares embrace a possible fall in promoting costs of gloves on decrease demand as extra individuals are being vaccinated globally, mentioned Ng.
As well as, Prime Glove’s plans to listing in Hong Kong — its third inventory itemizing after Malaysia and Singapore — additionally triggered worries that the corporate is elevating funds in anticipation of a weaker outlook, he mentioned.
However these issues will seemingly ease, mentioned Ng. Listed here are his goal costs for Malaysia’s glove shares.
Demand to remain above pre-Covid ranges
The analyst mentioned the bounce in common promoting costs of gloves shouldn’t be sustainable, and forecast a 30% to 35% fall in costs in 2022. Nonetheless, costs will seemingly stay above pre-pandemic ranges for the following two to 3 years at the least, he mentioned.
That is partly as a result of demand for gloves is anticipated to stay elevated within the coming years because the medical sector makes use of extra private protecting gear, mentioned Ng.
He added that he agreed with the report by consultancy Frost and Sullivan and commissioned by Prime Glove, which projected demand for disposable gloves to extend by a mean 15% yearly for the following 5 years.
Such development in demand would come alongside a 20% annual enhance in provide within the subsequent few years, mentioned Ng.
One other improvement that has pushed current worth actions in Malaysian glove shares is Prime Glove’s deliberate third itemizing in Hong Kong.
The corporate mentioned final month that it utilized for a “dual primary listing” in Hong Kong that could raise up to 7.7 billion ringgit ($1.87 billion). It said it will keep its current primary listing in Malaysia and secondary listing in Singapore.
Investors reacted negatively to the news on concerns that the additional listing would dilute Top Glove’s earnings per share.
Still, Ng has maintained his “buy” rating for Top Glove and its Malaysian peers. He said the decline in share prices have brought valuations down to levels that are “too cheap to ignore.”
The analyst added that compared with their international counterparts Malaysian glove makers are delivering higher dividend yield and better return on equity — a measure of financial performance.
Top Glove on Tuesday reported a surge in quarterly profits to 2.87 billion ringgit ($695 million) for the three months ended February, from 115.68 million ringgit ($28.03 million) a year ago.
The company said global demand for gloves continued to be “strong,” with the Covid pandemic spurring an increase in glove usage and heightened hygiene awareness.