Hartalega Holdings Bhd and Top Glove Corp Bhd are the two counters which have led this big rally in the rubber glove share prices, and they are now among the top-ten, largest capitalised stocks on Bursa Malaysia. They are also constituents of the closely tracked FBM KLCI index.
PETALING JAYA: Brokerages have become uneasy over the stratospheric rise in the share prices of rubber glove companies and have put a cap on how much traders can borrow if they use these counters as collateral.
“The brokerage houses have effectively put a ‘market cap’ on the glove counters for the time being. I think they are doing the right thing to protect themselves in case the prices abruptly come down since they are very overvalued now, ” said a Kuala Lumpur-based stock broker.
StarBiz sighted circulars from at least two bank-based brokerage houses that had limited the valuation that traders or borrowers could base their share collateral values on.
The biggest difference in these new margin values that a brokerage had recognised compared to the opening share price yesterday were Supermax Corp Bhd (57.5% discount) and COMFORT GLOVES BHD (45.5% discount).
Another brokerage had placed a default of a 35% discount on rubber glove companies on the previous day’s market price, or a much lowered share margin price, whichever was lower.
“What is happening now is a momentum play that is going on in these rubber glove counters and they are now fetching valuations of 70-80 times historical earnings which is very high. Their price movements have been stratospheric. Let’s say a cure or vaccine is suddenly found in the near future, their prices will come down to earth, ” a market dealer said.
Rubber glove counters saw an exponential increase in their valuations in the month of May as the Covid-19 pandemic continued to play out globally in the absence of an effective cure or vaccine.
Hartalega Holdings Bhd and Top Glove Corp Bhd are the two counters which have led this big rally in the rubber glove share prices, and they are now among the top-ten, largest capitalised stocks on Bursa Malaysia. They are also constituents of the closely tracked FBM KLCI index.
Hartalega yesterday closed 44 sen lower to RM12.74, while Top Glove declined 74 sen at its close to RM14.80.
The other rubber glove companies also saw a decrease in their share prices, with Supermax losing 34 sen to RM7.61, Comfort Gloves declining 45 sen to RM3.75 and Kossan Rubber Industries Bhd falling 33 sen to RM8.80.
According to stock market data, Top Glove for example saw some RM1.89bil worth of shares changing hands in the four trading days until June 1, while some RM821.44mil of Hartalega’s shares had swapped hands during this period.
Comfort Gloves had seen some RM1.26bil worth of its shares changing hands in this period and Supermax saw some RM1.40bil of its shares changing hands in the open market in the same period.
Fund manager Areca Capital’s CEO Danny Wong told StarBiz that future rubber glove share price increases would greatly depend on two factors: the companies’ earnings growth and whether investors or traders would be willing to pay a higher valuation for these stocks.
“Their prices are also subject to how the pandemic plays out, as the common view is that it will last at least for another six to nine months before a vaccine or cure is found, while some also believe that the higher share prices are justified by the higher average selling prices (ASPs), ” Wong said.
“If investors are willing to accept a higher valuation, then they might drive the prices up even higher. And the rationale behind this idea is that even if they had before this used to pay about 25 times earnings for rubber glove stocks, but today the investment climate has changed dramatically. There are only a few segments that are left with positive earnings, and investors may not mind paying higher, as the earnings growth price will grow accordingly eventually, ” Wong added.
On whether or not investors should continue to invest in rubber glove stocks, Wong said that longer-term investors who have been holding rubber glove stocks before the exponential rise in May could look to ‘take some profits’ if prices rose further.
“Shorter-term investors may want to choose to continue to buy with some short-term trading strategy in place. It really depends on their risk appetite and profile, ” Wong said.
The rubber glove companies’ increased value also comes at a time when analysts recently reaffirmed their bullish views and target prices on these stocks.
Maybank IB Research said in its recent report dated May 29 that Top Glove’s massive earnings explosion in the coming quarters will throw brokers’ forecasts out of the window.
The research house said the pandemic has resulted in demand and capacity constraints on the company and Top Glove’s sales lead time is now until June 2021.
“We expect a quarterly sales volume quarter-on-quarter growth of 25%/7%/5% respectively for the upcoming three quarters, underpinned by its capacity growth and a high plant utilisation rate of 100%, ” Maybank IB Research said.
It has maintained its buy call on Top Glove with a 12-month target price of RM20.00.
In its report issued yesterday on Supermax, RHB Research said it gathered from the company’s recent webinar that rubber glove demand has continued to increase in the past one to two weeks.
“Its latest lead time is now 12 months from 10 months some 10 days ago. The company’s orders are secured up to June 2021. The utilisation rate is now almost full at 90%-95% as compared to the normal level of 80%-85% before the Covid-19 pandemic, ” RHB Research said.
RHB Research has maintained its buy call on Supermax with a target price of RM10.50.
CGS-CIMB, meanwhile, said in its report on Supermax that its management was confident of raising its ASPs by 10% each month from June until December 2020, compared to its previous expectation of a 10% monthly increase from June to September 2020.
“In order to ensure that there will be no cancellation of orders, Supermax is requesting that its customers pay deposits ranging from 30%-50% in advance to lock in their orders. This is particularly for orders from non-recurring customers and/or spot buyers, ” CGS-CIMB said.
CGS-CIMB has maintained its add call on Supermax with a target price of RM9.80.
https://www.thestar.com.my/business/business-news/2020/06/03/cap-on-glove-stocks
