Glove makers' shares lacklustre despite record high earnings

Glove makers' shares lacklustre despite record high earnings
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KUALA LUMPUR (Oct 28): The exponential earnings growth of Hartalega Holdings Bhd and Supermax Corp Bhd did not seem to add fuel to a share price rally among rubber glove stocks on Bursa Malaysia this morning as market sentiment turned cautious.

Hartalega, whose net profit leapt five times to its best-ever quarterly net profit of RM544.96 million for the second quarter ended Sept 30, 2020 (2QFY21), dropped 26 sen or 1.42% to close at RM18.02 RM17.96, after it slipped to an intra-day low of RM17.58. 

Supermax fell 33 sen or 3.37% to RM9.45. The glove maker’s net profit surged almost 32 times to a record quarterly net profit of RM789.52 million for the first quarter ended Sept 30, 2020 (1QFY21), 

Meanwhile, Top Glove Corp Bhd was down by 13 sen or 1.46% to RM8.78, and Kossan Rubber Industries Bhd lost two sen or to RM7.50. Among smaller players, Comfort Gloves Bhd shed 13 sen or 3% to RM4.11, Careplus Group Bhd fell 16 sen or 4.35% to RM3.52, while Rubberex Corp (M) Bhd dropped seven sen to RM2.23.

Fund managers contacted by opined that investors remained cautious about trading gloves stocks as valuations were steep.

“A lot of expectations have already been built into, leading up to the results announcements. So [it was] buying on rumours, selling on facts — nothing really surprising.

“I am out of gloves now as the valuations are quite steep. I think the danger of the stocks coming off is quite huge in my opinion,” said a fund manager.

'Good results had been anticipated'

Fortress Capital Asset Management chief executive officer (CEO) Thomas Yong also opined that glove players had done well compared to other stocks in the market, with market valuations pricing in expectations of high demand.

“Good results for the next six months to a year have already been well anticipated. Investors are looking for sustainability of glove average selling prices (ASPs) as new capacities are rolled out, while the positive news flow of vaccine development has resulted in a more cautious view on the sector,” said Yong.

He opined that market sentiments were also periodically affected by political developments as well as the upcoming US presidential election.

Analysts, however, remained positive on the outlook for Hartalega and Supermax. Out of nine analysts, eight had either "buy" or "outperform" calls for Hartalega, with target prices (TPs) ranging from RM20.60 to RM26.22.  

Meanwhile, CGS-CIMB, Affin Hwang Capital and Kenanga Research maintained their "buy" or "outperform" calls for Supermax, with TPs ranging from RM12 to RM16.40.

Analysts with "buy" calls for Hartalega or Supermax believe that the companies will achieve stronger results for the upcoming quarters, driven by higher sales volume and higher glove ASPs amid the Covid-19 pandemic.

PublicInvest Research analyst Chua Siu Li, who upgraded Hartalega from "neutral" to "outperform", said she had raised her earnings forecasts for the company for FY21-23 by 30%-198% to account for expected hikes in ASPs. She expects Hartalega’s earnings per share (EPS) to shoot up to 79.5 sen for FY21, followed by 166.7 sen and 108.4 sen for FY22 and FY23 respectively. The company’s EPS stood at 12.9 sen for FY20.

Affin Hwang Capital analyt Ng Chi Hoong also raised his EPS estimates for Supermax for FY21-23 by 50.4%-61.7%, with higher assumptions of ASPs of rubber gloves. He expects Supermax’s EPS to shoot up to RM1.09 for FY21, but more than halved to 45.9 sen for FY22. The company’s EPS stood at 19.3 sen for FY20.

Read also:
Supermax's share price fails to climb despite exponential earnings growth

Surin Murugiah