INTEREST in the big four glove stocks is expected to spike in tandem with a surge in the COVID-19 cases both domestically and globally.
MIDF Research said its channel checks had revealed that supply for medical gloves remained tight with their average selling prices (ASPs) still in an upward trajectory after the jump seen in the first half of this year.
“Ex-factory prices are expected to grow by 30-40% in 3Q CY20 compared to 2Q CY20,” wrote analyst Ng Bei Shan.
“Following that, there may be another increase of 40% to 50% in 4Q CY20. As such, the glove makers are likely to beat their own records seen in the last quarter in the upcoming two quarters.”
Against the backdrop of high daily global COVID-19 cases, Ng noted that demand and ASPs were well supported.
This prompted him to revise earnings forecast for Top Glove Corp Bhd for FY2021/2022/2023F by 55%/73%/40% while earnings estimate for Hartalega Holdings Bhd is revised to 66%/56% for FY2021/2022F.
Similarly, earnings estimate for Supermax Corp Bhd for FY2021/2022/2023F is adjusted by 34.8%/81.4%/75.2% while earnings forecast for Kossan Rubber Industries Bhd is revised by 31%/90%/49% for FY2020/2021/2022F.
On the entry of newbies into the glove manufacturing sector, Ng said it was difficult to gauge their production capacity as most of them had not announced full details of their new ventures such as production capacity and product types.
Ultimately, their production efficiency will also determine what kind of impact they can leave on the industry.
The incumbents will have a head start due to their long-term relationship with their customers, suppliers, technical know-how and production efficiency.
“Depending on whether the plans are greenfield or brownfield, gestation period may take up one year to two years and may also vary according to its planned capacity,” he opined.
“Topping that is the period required to get necessary approvals from the officials in the respective countries they plan to sell to as well as rigorous testing for exports to developed nations.”
As the new entrants are likely to start-off small in the first two-years of their establishment, they are expected to contribute to less than 5% of the total production in Malaysia in 2021, added Ng. – Oct 21, 2020
