KUALA LUMPUR: TA Securities Research expects buying interest in the local market should sustain this week with selective nibbling in undervalued blue chips, gloves and selective oil and gas stocks.
In its strategy report on Monday it said with a third wave of the Covid-19 pandemic spreading across Europe, due to the more contagious B.1.1.7 variant of the virus or better known as the UK variant, there is a high likelihood for momentum trades in glove stocks.
Interest in gloves, it said, should provide some upside bias for the FBM KLCI this week. Top Glove Corporation, Hartalega and Supermax are part of the 30-index linked stocks.
TA Research said as a reaction to rising new case, Italy has imposed strict lockdowns on large parts of the country last week.
In Spain, all regions except for Madrid have decided to restrict travel over the Easter holidays in April, while Germany has stopped plans to ease restrictions.
The UK variant has also been spotted in the US and it is expected to be the dominant strain in the US by end March or early April, according the US Centers for Disease Control and Prevention.
“However, there is no doubt about reservation of some investors to go long on glove stocks with the abnormal average selling prices (ASP) and volumes are expected to come off with the progress in vaccination and ASPs facing added strain from increasing new glove supplies in future.
“The strong growth in ASPs and volume has already started tapering off since the vaccination started on a global scale this year and prices are expected to drop on month-on-month (MoM) basis.
“Market leader like Top Glove has already indicated a gradual decline in ASP of nitrile gloves by 3-5% MoM for April and May but it expects the decline to be cushioned by a similar increase in latex gloves, ” it said in its report.
While blended prices should see sustained MoM weakness from 3Q21 onwards with progress in vaccinations, TA Research said glove players are confident that prices will not normalise to pre-Covid levels in the next three years.
With new supplies coming on stream, profits are expected to remain many times higher during this period than pre-Covid results in 2019.
With the key glove players’ price- to-earnings ratio ranging from a very low single digit in 2021 to mid-teens in 2023 and dividend yield dropping to around mid-single digit in 2023 from teens in 2021, these stocks still appear palatable compared to most stocks with similar market capitaliation that trade at much higher valuation multiple with lower dividend yield.
It has a Buy on Hartalega (TP: RM17.12), Kossan (TP: RM7.05), Supermax (TP: RM12.33) and Top Glove (TP: RM7.80).
That aside, the improving demand and supply restrictions have contributed to the strong recovery in crude oil prices recently and it is expected to sustain despite short-term volatility caused by resurgence of Covid-19 cases.
TA Research said the continued progress in vaccination programmes and the expected arrival of new and improved vaccines by end of this year should keep a tight lid on the virus and aid strong recovery in economic activities and final demand.
Besides, frequent airborne assaults on Saudi Arabia’s, world’s second largest oil producer after the United States, oil facilities by Iran-backed Houthi rebels should provide some upside volatility for crude oil prices.
After the most recent attack on Ras Tanura oil refinery, another airborne assault was witnessed last Friday on an oil installation in Riyadh.
The official Saudi Press Agency said there were no injuries or damage without naming the affected site.
Subsequent to the attack Brent crude oil prices rose 1.98% to US$64.53 last Friday. Buy Lotte Chemical Titan (TP: RM3.21), MISC (TP: RM8.90), Petronas Chemicals (TP: RM9.10) and Serba Dinamik (TP: RM2.10).