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KUALA LUMPUR (Aug 26): The Covid-19 pandemic has brought great fortunes to glove makers and their shareholders. But as news flow increasingly suggests that the discovery of a viable vaccine is imminent, investors appear to be ditching the glove counters as they rush for a piece of those companies that will stand to benefit from the potential roll-out of a vaccine.

This was apparent when Bursa Malaysia's top decliners yesterday were led by the glove counters, while those associated with the potential sale of Covid-19 vaccine and packaging were at the top gainers list.

Top Glove Corp Bhd was the biggest loser of the day, as its share price declined 8.96% or RM2.50 to RM25.40, followed by Supermax Corp Bhd (down 10.41% or RM2.30 to RM19.80), Kossan Rubber Industries Bhd (down 8.16% or RM1.30 to RM14.64), and Hartalega Holdings Bhd (down 5.71% or RM1 to RM16.50). Comfort Gloves Bhd, Rubberex Corp (M) Bhd and Careplus Group Bhd also fell.

Altogether, the seven glove makers lost a combined RM15.56 billion in market capitalisation.

On the other hand, Pharmaniaga Bhd's shares jumped as much as 26.9% to RM6.69, before paring some gains to close at RM5.96 — a four-year high and still up 13.09%. Duopharma Biotech Bhd, meanwhile, hit an intraday high of RM4.32, before settling at RM3.72 — its highest closing on record. The two were the third- and fourth-biggest gainers respectively across the local bourse, after Dutch Lady Milk Industries Bhd and Petronas Dagangan Bhd.

Science, Technology and Innovation Minister Khairy Jamaluddin said in July that Prime Minister Tan Sri Muhyiddin Yassin had given the nod for the two government-linked pharmaceutical companies to undertake the fill and finish processes for a Covid-19 vaccine, once the country secures it.

Even companies that have done nothing more than just inking memoranda of understanding to develop a vaccine such as engineering outfit Bintai Kiden Corp Bhd hit limit up yesterday when its shares jumped to a 13-year high of 70.5 sen. Ho Wah Genting Bhd, which has said it will be partnering a US firm to develop and distribute a Covid-19 vaccine, also rose 9.91% to RM1.22, just shy of its eight-year peak of RM1.29 that was seen earlier this month.

The vaccine sentiment even buoyed shares in pharmaceutical counters that have not said anything about vaccine-related forays, such as Kotra Industries Bhd (up 6.25%), Apex Healthcare Bhd (up 1.6%) and YSP Southeast Asia Holding Bhd (up 0.79%).

The thematic switch is happening even though glove makers have said that their record quarterly earnings so far can be easily surpassed in the coming quarters. Not to mention the fact that the search for the vaccine is still ongoing — with at least 11 types of Covid-19 vaccines currently being tested around the world, seven of them currently at the third phase of clinical trials — with analysts speculating that one will only be ready in the second quarter of 2021.

Still, the stock market is a forward-looking mechanism. Yesterday, AmBank Research downgraded the glove sector to "neutral" from "overweight", as it was of the view that glove makers shares had already peaked and exceeded their target prices.

It expected the elevated average selling prices (ASPs) enjoyed by glove makers under its coverage — Top Glove, Hartalega and Kossan — "will begin to taper off in 1Q21 (first quarter of 2021)".

On top of that, the planned capacity increase of 126 billion pieces or 54% by end-2022 across the sector "will more than offset" the increase in demand, and that the recent strides in Covid-19 vaccines will affect ASPs as well.

However, it maintained its earnings forecasts, on the expectation that sales volume will continue to grow next year. "[This is] as we anticipate a structural change in the way gloves are used," it said.

"PE valuations are demanding," the research house said, pointing out to Top Glove's CY21F PE of 43.3 times versus its three-year average forward PE of 28.9 times, Kossan's CY21F PE of 26 times against its three-year average of 23.7 times, and Hartalega's CY21F PE of 40.9 times, compared to its three-year average PE of 39.5 times.

As for the potential beneficiaries of the Covid-19 vaccine, there is no way to calculate any earnings accretion as the potential vaccine remains, for now, just a potential upside.

Edited by Tan Choe Choe


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