Dear fellow readers,
Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :
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If
there is a fear index created to measure emotions of investors for the
past 1 week in Malaysia especially, I believe the chart of that fear
index probably hit limit up for 5 consecutive days. This is no joke at
all when we look at how much the healthcare index and specifically the
glove stocks have fallen in the past weeks.
It
is hard to imagine that these stocks were just touted as the Darlings
of Bursa barely 1 month ago by the entire investment community be it
banks, funds, media, retailers and others. What has changed in 1 month?
Did the share price hit new high before leading to this protracted
irrational selloff? Or did the factories burnt down? Or was windfall tax
imposed? Or did US and Europe banned gloves from Malaysia?
Answer : None of the above. In fact, nothing changed. Fundamentally or structurally.
Vaccine news - factored in.
Windfall tax news - factored in.
Customs Detention - factored in.
Labour Remediation fees - factored in.
My
4 points above are just highlighting the major concerns in the analyst
reports which are often bantered about by those who do not believe in
the glove story. There may be more considerations like politics, raw
material supply, USD strength and what not. But let's not go there yet
as I will share in my table below.
Things will get worst before it gets better?
In
many ways, I can say with conviction based on channel checks that the
selloff really went into full gear when Local Funds / Institutions
pulled the rag under the investors' feet. Meaning, they not only failed
to support, they even sold the stocks across all sectors specifically
Gloves. Some say they did it to book profit, some said they don't
believe in the Glove story anymore due to vaccine, another extreme is
taking the view that Glove stocks are overvalued. This is where I
differ. I am of the view taking profit is fine, as it is part of risk
management. However, I think the lack of understanding and knowledge
caused a gap in deriving the value of Glove stocks. At the end of
the day, it all comes to profit & growth. Neither are at its peak
for Glove stocks. The earnings will continue to grow, the cash flowing
into the company will continue to sustain and the visibility is for the
next 12 months / 4 quarters. Not next 1-2 months.
In
fact, the post Covid-19 Normalisation of ASP argument hold no ground at
this juncture because no one knows when Covid-19 will end. Not Fauci,
Not Nor Hisham, Not WHO and definitely not Trump. So how is it that the
share price currently are trading at close to / below post Covid-19 ASP
normalisation valuation at FY 2022/ 2023? This is what I cannot wrap my
head around.
Furthermore,
funds have no where to go for yield. Dividend yielding stocks was
crushed this past year due to Covid-19, your traditional defensive
stocks like Utility, Banks, Consumer staples, REITs are not giving the
dividend as expected. But if any company or sector can deliver bumper
dividend / special dividend, it is the Glove companies due to their cash
hoard.
In
a way, whilst writing this article, I have a mixed feeling. I feel the
Local Funds shot ourselves in the foot and killed our own uptrend both
in the Glove stocks & the Index, because of the naysayers and
non-believers in the capability, entrepreneurial spirit
and competitive nature of these Glove manufacturers. In fact, even
Foreign Analyst from Foreign Banks are more bullish about our Glove
Sector than Local Analysts from Local Banks. However, I am also excited with this opportunity.
In
the event my conviction turns out right, this selloff has given many
investors who dare to be a contrarian to take an opposing views against
funds by buying on weakness to make huge returns. Fundamentals always
prevail over short term trades. No one can time the market to perfection
but share price moves in tandem with earnings. Earnings grow, valuation
is cheaper, share price rises. It sounds simple but its the truth. I
believe Local Funds & Institutions who threw the shares will realise
they are making a huge mistake sooner than later.
So Which Side Are You On? Pick Your Side But Choose Wisely.
|
|
Against Gloves |
|
Record Earnings For The Next 4 Quarters (Minimum. May Be More than 4Q) |
Vaccine Approvals / End of Covid-19 Pandemic |
|
Committed & Lock In Orders with Deposit Paid |
Post Covid-19 Normalisation of ASP |
|
Delivery Lead Time of 20 months |
Too Expensive Valuation |
|
Huge Cash Hoard / Net Cash position |
Windfall Tax |
|
Potential Special Dividend / Yield Play |
Labour Remediation Fees |
|
Further ASP Increase |
Higher Cost of Raw Materials |
|
Additional Capacity |
Potential Oversupply from New Entrants Into The Market |
|
Structural Change in Demand & Hygience Practices Post-Covid 19 |
Weaker USD, Stronger MYR |
|
Continuous Stock Piling by Governments |
US / Local Election |
|
Rerating of Latex Gloves ASP as Nitrile Gloves waiting time far exceeds Latex Gloves |
End of Loan Moratorium, Retail Investors leave Bursa |
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Food for thought:
http://www.tradeview.my/2020/09/tradeview-2020-argument-for-against.html
