Sentiment on glove makers take a U-turn amid factory infections, sector downgrade and vaccine roll-out

KUALA LUMPUR (Dec 15): Rubber glove stocks saw a selldown yesterday, amid a slew of negative news in recent days including reports of increasing numbers of infections at the factories of several glovemakers, a downgrade of the sector by JP Morgan, as well as the Covid-19 vaccine roll-out.

Hartalega Holdings Bhd topped the list of decliners by value, with its share price falling RM1.76 or 12.8% to RM11.96, followed by Supermax Corp Bhd (down 80 sen or 10.6% at RM6.76), Kossan Rubber Industries Bhd (down 69 sen or 12.8% at RM4.70) and Top Glove Corp Bhd (down 60 sen or 8.7% at RM6.30).

Hartalega yesterday said it has completed the mandatory precautionary Covid-19 testing of all its foreign workers, and has further expanded the testing to its local employees as well.

It said 35 workers — 20 from the group’s Bestari Jaya facility and 15 from its Sepang manufacturing complex — tested positive for the virus, representing 0.4% of its total 8,772 employees including local employees, as well as outsourced vendors such as security personnel and canteen operators.

Meanwhile, Reuters said Top Glove saw the first Covid-19-related death among its workers — a 29-year-old worker from Nepal who died due to Covid-19 pneumonia with lung fibrosis.

The group also saw a temporary shutdown of its 28 factories in Klang last month, amid the outbreak of the virus among its workers, with an Enhanced Movement Control Order enforced at its worker dormitories starting Nov 17. The month-long lockdown was lifted yesterday.

Infection outbreaks aside, JP Morgan over the weekend had recommenced coverage of Top Glove, and initiated coverage of Hartalega and Kossan, setting fair values way below the prevailing share prices of glovemakers.

It set a fair value of RM3.50 for Top Glove (with an underweight rating), RM8.50 for Hartalega and RM3.80 for Kossan, with its analysts expecting glove prices to weaken in the second half of 2021.

JP Morgan analysts Jeffrey Ng and YY Cheah noted that the glove sector has become crowded, “implying significant downside momentum”.

“Near-term concerns on rising costs, plus long-term overcapacity risk, spell downside risks. Once Malaysia lifts the short selling ban, downward pressure could be amplified,” they wrote.

They pointed out that 13 of 17 highly populated nations’ testing trends have started to trend downwards from their peaks since the end of September, which they said may be an early indication that glove prices too have peaked.

The same goes for producers’ profits and share prices, they added.

The analysts noted oversupply as a key issue, amid significant capex plans from the big four producers, as well as new players.

However, JP Morgan said a second global wave of Covid-19 and any unplanned glove production disruption could lift glove prices to new heights.

On the vaccine front, Reuters said the first shipments across the US will inoculate more than 100 million people by the end of March.

Closer to home, Singapore became the first Asian country to approve Pfizer-BioNTech’s vaccine, expecting to start receiving shots by the end of the year, while Indonesia is targeting to supply non-subsidised vaccines to 75 million people within the next eight or nine months.

Meanwhile, Putrajaya has plans to increase its purchase of the Covid-19 vaccine to cover the immunisation needs of 60% to 70% of Malaysians, versus 30% currently.

Prime Minister Tan Sri Muhyiddin Yassin indicated suppliers had been asked to expedite delivery of the vaccine, which is scheduled to arrive in March.

Source: TheEdgeMarkets