KUALA LUMPUR: The sell-off in global equities gathered pace yesterday, as Asian benchmarks were not spared after the World Health Organization (WHO) announced that Covid-19 had reached “pandemic” status. US President Donald Trump’s lacklustre response to the crisis added to the fuel.
The benchmark FBM KLCI fell 1.69% or 24.40 points to 1419.43; harder hit was the FBM Small Cap which tumbled a whopping 5.77% or 657.07 points to 10,729.54.
The only bright spot was healthcare, the index inched up by 1.96 points or 0.15% to 1,349.95 even as all major sector indices headed south.
More specifically, glovemakers have shown rude health amid the health crisis, posting impressive gains. Yesterday, they were again among the top gainers.
Top Glove Corp Bhd rose 23 sen or 3.66% to RM6.51, Kossan Rubber Industries Bhd 18 sen or 3.52% to RM5.30, and Hartalega Holdings Bhd nine sen or 1.39% to RM6.57.
Supermax Corp Bhd, Rubberex Corp (M) Bhd, Careplus Group Bhd, and Comfort Gloves Bhd also posted gains of between 1.73% and 3.39%.
Public Invest Research technical analyst Lee Siao Ping told The Edge Financial Daily, “in terms of price charts, all of the big four glovemakers are currently at solid uptrend. Buying interest from investors is high,” particularly for Top Glove and Kossan Rubber which recently broke new highs with solid trading volumes throughout the trading sessions.
However, Lee observed that interest had tapered off towards market close — an indication of profit-taking, he concluded.
He said the healthcare index is currently in a “pennant” trading pattern — indicating sideways trading — with the key resistance level at 1,383 and support level at 1,330.
“The healthcare index needs to hold above 1,383 to warrant further price action, but bear in mind that other than the major glovemakers, IHH Healthcare [Bhd], which price has been relatively stable, is one of the heavy constituents to the index. Glovemakers need to make a strong move to shift the healthcare index, and that in turn will depend on the outbreak situation.”
Glovemakers are seeing strong demand with a robust order backlog of more than three months, said CGS-CIMB Research analyst Walter Aw, who expects stronger earnings, especially from the second quarter of 2020 onwards, mainly because of greater economies of scale and better pricing power.
“Conducive operating environment such as weaker ringgit, which has dropped 3.7% year to date, and lower raw material prices, are beneficial to glovemakers too,” he added.
The rosier outlook for glovemakers came on the heels of WHO’s exhortations to countries to ensure sufficient medical supplies. Malaysia is the world’s largest producer of rubber gloves and the Malaysian Rubber Glove Manufacturers Association has been requested to ramp up supply to avoid a global shortage.
Based on 8% to 9% global glove demand growth, Aw forecasts that glovemakers will record a 14% rise in 2020 forecasted revenue. Every five-percentage-point rise in the utilisation rate of each glovemaker (currently between 82% and 85%) could lead to 6.8% to 10.1% upside to earnings forecasts.
Affin Hwang Capital Research analyst Ng Chi Hoong said that as most manufacturers are already operating at around 90% utilisation rate, the average selling price is likely to be revised higher.
He also believes that after the WHO “pandemic” announcement, some countries which are not affected by Covid-19 might also start stocking up inventories, pushing glove demand even higher.
“There was already stronger demand for rubber medical gloves since 4QFY19 (fourth quarter of financial year 2019) from the US, ever since the US started imposing tariffs on Chinese medical gloves.”
Rich valuations notwithstanding, CGS-CIMB and Affin Hwang Capital advised investors to stay “overweight” on the sector as they believe the glove counters will outshine the rest in earnings growth, especially in a volatile market. Their top picks are Top Glove and Kossan Rubber.
http://www.theedgemarkets.com/article/rubber-gloves-safe-haven-volatile-virusstricken-market
