Over the past 1 month, glove stocks' prices have rallied spectacularly. The top 4 glove makers have risen between 37 and 168% since end of March.
Table 1: Glove stocks' price gain over last 50 days
The rise is so sharp that the top producers are now trading at PER of 44 to 71 times. If that is not enough, analysts are falling over one another to upgrade their target prices, giving each stock even higher target price.
Table 2: Glove stocks' valuation by Kenanga
This afternoon, one of my clients sent me a table of the market capitalization of our banking stocks and the top 4 glove makers. It is indeed a surprise to see Harta and Topglov commanding market cap comparable to HLBANK and RHBBANK.
Table 3: Banking and glove stocks' market cap & valuation compared
When will the rally in glove stocks peak? I used an unorthodox approach in determining the potential peak for glove stocks by looking at the unadjusted price charts of Harta, Topglov and Kossan.
All these 3 stocks have consistently been giving out 1-for-1 bonus issue (1-to-2 share split is very similar to a 1-to-1 bonus) over the past 10 years. If you looked at the unadjusted price charts, each of these stocks had subsequently rallied back to their respective unadjusted prior peaks- which effectively means that their share prices have doubled up during that period. There were only one occasion when Harta and Kossan's rallies had exceeded their prior peaks- in 2018 and 2016 respectively. Today, Topglov and Kossan share prices are very close to their prior peaks. Harta share price has another RM2.00 to go to reach its prior peak.
Chart 1: Harta's monthly chart as at May 21, 2020_11.00am (Source: Malaysiastock.biz)
Chart 2: Kossan's monthly chart as at May 21, 2020_11.00am (Source: Malaysiastock.biz)
Chart 3: Topglov's monthly chart as at May 21, 2020_11.00am (Source: Malaysiastock.biz)
I have left out Supermx because it had not been consistently giving out bonus shares. It may be an outlier in this pact.
Chart 4: Supermx's monthly chart as at May 21, 2020_11.00am (Source: Malaysiastock.biz)
In my opinion, the potential upside for the top 4 glove stocks is now fairly limited. It is advisable to take some profit on these stocks after the strong rally, notwithstanding the analysts' very favorable rating and extremely high price target.