Today's market after Monday holiday started with brave expectations of a gunging-ho day. However after just 10 minutes one can sense that there were more people waiting to sell than people dying to buy. You can see that via what we call price action. Of course some syndicates will park and do funny stuff and churn, but try to learn to note the price action to learn about the character of the stock for the day.
Much of the trepidation surrounding glove makers is the upcoming quarters results by Top Glove come Thursday. It is going to be a significant moment for glove makers. A superb performance will further add fuel and optimism for the rest. A meeting of expectations alone will attract only profit takers and a lack of fresh buyers.
In situation as such we have to ask: if the results are above expectations, who else will come in to buy?; if the results sufficient to generate enough confidence that the current HOLDERS would largely choose not to sell and wait for higher levels; if its below expectations well, be in for a swift pullback.
Hartalega's recent quarterly, how was it? It was tepid. It has to be noted that it was for the 3 months ended March 2020, hence it did not get to reflect much of the upsurge in orders.
A better gauge has to be Supermax quarterly results which was announced on 20th May 2020. Supermax appears to have included some of the uptick in ASP (average selling price) in the quarterly. This made Hartalega's financials look bad in comparison. While revenue only jumped from RM385m to RM447m (+16%), PBT jumped from RM41.8m to RM95.2m (+170%). The resultant quarterly EPS was 5.42 sen. If you annualised that = 21.68 sen, at share price of RM8.88, PER will be just 41x. If we tag on a realistic 30% uptick for 21.68 = 28.1 sen = PER 31x. Totally reasonable being a favoured sector with a new normal of demand in store.
Now's the turn of the bellwether Top Glove, its quarterly to be announce on Thursday. Its for the quarter ended May 2020. Top Glove prides itself for being one of the swiftest to announce their quarterly. However 11th June was an even faster date compared to previous quarters: 17 Dec and 19 Mar. It has to be probable very good news that Top Glove wanted to shout it out to the world. Bearing in mind it has an additional two months of heady business compared to Supermax, analysts have been quite positive.
So what would be a decent expectation. The way Top Glove's price has been behaving around RM16-17 indicates that we are factoring at least 150%-200% jump in NP. Previous quarter's NP was RM116m, hence expectations will be around RM290m-348m or EPS of 11.3 sen - 13.5 sen. Annualise that = 45.2 sen - 54 sen. At RM18.00, PER would be 39.8x - 33x. Still within the realm of reasonableness. If we do not get RM280m in net profit, I suspect there will be a sharper sell down back to RM13.00-RM14.00. If its higher than RM360m, that should pave the way to march past RM20.00.