THERE was slight hope in the first two hours of today’s market trading that two of Malaysia’s Big-Four glove makers, Hartalega Corp Bhd and Kossan Rubber Industries Bhd, could expect some form of turnaround after incessant sell-down in recent times which has even relegated the latter to a penny stock.
But alas, mounting selling pressure stemming from weaker prospects ensued with Hartalega having succumbed to ‘stock dumping’ which made the priciest glove stock on Bursa Malaysia today backpedalled from an intra-day high of RM1.94 to end today’s mid-day trading 19 sen or 10.22% lower to RM1.67.
The consolation, however, was that it ended as the day’s most actively traded stock thus far – a rarity – with 100.96 million shares exchanged hands.
Kossan which is by far the second priciest of glove stocks on Bursa Malaysia fared slightly better by retreating 3 sen or 3.05% to 95.5% after having touched an intra-day high of RM1.01 earlier in the morning.
Like Hartalega, Kossan, too, was heavily traded by virtue of the counter being the fifth most active traded stock at lunch break with 40.55 million shares exchanged hands.
The heavy volume could be the result of ‘dumping’ by institutional investor, the Employees Provident Fund (EPF), which has for the past two months or so been relinquishing its stake in both glove makers after having ceased to be Top Glove Holdings Bhd’s substantial shareholder on May 23.
Yesterday (Aug 15), Hartalega in a Bursa Malaysia filing revealed that the EPF has disposed a further 5.092 million shares in the company on Aug 10, thus reducing its direct interest to 6.667% (substantial shareholding threshold is 5%).
On Friday (Aug 12), Kossan noted that EPF had sold a total of 512,000 shares of the company on Aug 10 but at the same time bucked the trend by having acquired 2.124 million shares in two tranches – all transactions carried out on Aug 9 – to raise its stake in the glove maker to 5.59% from 5.527% previously.
EPF’s sell-down of its shareholding in glove stocks can be attributed to a shift of its investment priority as the COVID-19 pandemic-driven jump in glove demand normalises at a time when the progress of global vaccination offers hope that the outbreak can be curbed.
Interestingly, Kossan had also embarked on its own share acquisition with its unit Kossan Holdings (M) Sdn Bhd which is controlled by group managing director/CEO/founder Tan Sri Lim Kuang Sia having acquired 3 million shares in two tranches (on Aug 10 and Aug 11) to raise its own stake to 48.249%.
Following its dismal 1Q 3/FY2023 net profit of RM88.3 mil (-145% quarter-on-quarter [qoq]; -96% year-on-year [yoy]), prominent research houses CGS-CIMB Research and UOB Kay Hian Research have downgraded Hartalega to “reduce”/”sell” with lower target prices of RM2.30 (from RM4.70) and RM2.25 (from RM2.55) respectively.
Meanwhile, Maybank IB Research reiterated its “sell” rating on Hartalega with a lower target price of RM1.86 from RM2.48 previously.
Similarly, Maybank IB Research has also demoted Kossan to “sell” (from “hold”) with a lower target price of RM1.10 (from RM1.85) on concerns over the Big-Four glove maker has to endure prolonged demand-supply disequilibrium and inevitable price war.
Moreover, with both its average selling price (ASP) and earnings outlook remain challenging, Kossan may slow down its capacity expansion plans in tandem with market condition, according to Maybank IB Research.
“Fortunately, Kossan has a strong balance sheet (57 sen/share net cash; 0.5 times total cash/market cap ratio) to ride out the storm,” opined analyst Wong Wei Sum in a company update on July 4.
“Given the oversupply situation, we lower our utilisation rate assumption to 70% (from 75% previously) while keeping our ASP assumption of US$23/1,000 pieces (similar to pre-pandemic level) for 2023/2024 for now.” – Aug 16, 2022
