High Glove shares fall as Covid-induced demand eases

Stocks of Malaysia Upper glove, the world’s largest manufacturer of medical gloves, are down more than 50% this year as the global roll out of Covid-19 vaccinations dampened demand for gloves.

“As in any business, there are always ups and downs. And you can’t expect super wins to last for a long, long time. So we’re glad we had a good run last year, “Lee Kim Meow, Top Glove CEO told CNBC:”Road signs Asia” on Monday.

The company on Friday announced a 48% year-over-year decline in net income to 608 million Malaysian ringgits ($ 145.11 million) for the June-August period. Sales were around 2.1 billion ringgits, 32% less than a year ago.

The results were “weaker due to the normalizing demand for the global introduction of vaccines, resulting in lower sales volumes and [average selling prices]that weren’t offset by a corresponding cut in commodity prices, “Top Glove said in his annual accounts.

As in any business, there are always ups and downs. And you can’t expect super wins to last for a long, long time.

Lee Kim Meow

Managing director, top glove

In addition, the company’s sales were increased by a US import ban on charges of forced labor. The ban has been lifted earlier this month.

Top Glove shares in Malaysia fell more than 5% on Monday, increasing their year-to-date losses to over 52%.

Other Malaysian glove inventories also declined, with Hartalega, Super max and Kossan recorded losses of between 3% and 5% on Monday.

In comparison, is the benchmark stock index FTSE Bursa Malaysia KLCI index down less than 1% on the same day.

Last year, Top Glove’s shares rose 290% as they posted record sales and earnings, thanks increasing demand for gloves during the pandemic.

Listing in Hong Kong

Upper glove delayed a plan to pursue “dual primary listing” to raise $ 1 billion on the Hong Kong Stock Exchange after the company was hit with the US import ban.

Lee told CNBC the company wanted to continue listing. Top Glove already has a main listing in Malaysia and a Second listing in Singapore.

“We felt that, for the sake of long-term business, in order to move forward and see the benefits of being listed in Hong Kong, we had to see this as something we had to go through,” said the executive director.

“A listing in Hong Kong will put us in a good position to be where we want to be to achieve our dream of being a Fortune Global 500 company in 2030,” he added.

Analyst on outlook for Prime Glove, Malaysian glove shares

SINGAPORE – The recent fall in prices for Malaysian rubber glove manufacturers is “unjustified,” said an analyst who predicts further uptrend for stocks.

Shares of Top glove, the world’s largest manufacturer of rubber gloves, is down 17.7% this year at the close of trading on Monday. His smaller colleagues Hartalega, Super max and Kossan fell between 18% and 30%.

In comparison, the benchmark FTSE Bursa Malaysia KLCI Index fell by 0.9% over the same period.

Employees at Top Glove, the world’s largest glove manufacturer, will test latex glove production in a waterproof test room at one of the company’s factories in Selangor, Malaysia on February 18, 2020.

Samsul said | Bloomberg | Getty Images

“We are maintaining our overweight position in the sector as we believe the recent decline in share prices is not justified,” wrote Ng Chi Hoong, an analyst at Malaysian investment bank Affin Hwang, in a report on Monday.

The decline in Malaysian glove inventories followed a significant jump in the last year if the Covid-19 pandemic increased demand for medical gloves.

Factors affecting investor confidence in the stocks include a potential decline in glove retail prices with lower demand as more people are vaccinated around the world, Ng said.

In addition, Top Glove’s plans to list in Hong Kong – the third public listing after Malaysia and Singapore – also sparked concerns that the company is raising funds in anticipation of a weaker outlook, he said.

But those concerns are likely to subside, Ng said. Here are its target prices for Malaysia’s glove inventory.

Affin Hwang’s target price for Malaysian glove stocks

Stocks Monday is over (Malaysian ringgit) Guide price (Malaysian ringgit) head
Top glove 5.04 10.10 100%
Hartalega 9.70 5 p.m. 75%
Super max 4.21 10.90 159%
Kossan 3.66 9.30 154%

Challenge to stay above pre-covid levels

The analyst said the increase in average glove retail prices was unsustainable and forecast a 30% to 35% price drop in 2022. Still, prices are likely to stay above pre-pandemic levels for at least the next two to three years. he said.

This is partly because the demand for gloves is expected to continue to grow in the coming years as the medical sector makes more personal protective equipment use, Ng said.

He added that he agreed with the report by consultants Frost and Sullivan, commissioned by Top Glove, which said demand for disposable gloves would grow an average of 15% annually for the next five years.

Such demand growth would be accompanied by a 20% annual supply increase over the next few years, Ng said.

Top Glove is planning a listing in Hong Kong

Another development that has fueled recent price moves in Malaysian glove stocks is Top Glove’s planned third listing in Hong Kong.

The company said last month that it applied for one “dual primary collection” in Hong Kong, that could bring in 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 news that the additional listing would dilute Top Glove’s earnings per share.

Nonetheless, Ng has kept his buy recommendation for Top Glove and his Malaysian colleagues. He said the decline in stock prices had lowered valuations to levels “too cheap to ignore”.

The analyst added that Malaysian glove makers have a higher dividend yield and better return on equity compared to their international counterparts – a measure of financial performance.

Top Glove on Tuesday reported an increase in quarterly earnings 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 continues to be “strong” as the Covid pandemic has led to an increase in glove use and hygiene awareness.