SINGAPORE — The recent plunge in share costs of Malaysian rubber gloves makers is “unjustified,” stated an analyst who’s predicting additional upside for the shares.
Shares of Top Glove, the world’s largest rubber gloves producer, have fallen 17.7% this 12 months as of Monday’s shut. Its smaller friends Hartalega, Supermax and Kossan have dropped between 18% and 30%.
In comparability, the benchmark FTSE Bursa Malaysia KLCI Index fell 0.9% in the identical interval.
Staff of Top Glove, the world’s largest glove maker, examine on the manufacturing of latex gloves in a watertight take a look at room at one of many firm’s factories in Selangor, Malaysia, on Feb. 18, 2020.
Samsul Said | Bloomberg | Getty Images
“We are maintaining our Overweight call on the sector, as we believe the recent decline in share prices is unjustified,” Ng Chi Hoong, an analyst at Malaysian funding financial institution Affin Hwang, wrote in a Monday report.
Factors hurting investor confidence in the shares embody a possible fall in promoting costs of gloves on decrease demand as extra folks are being vaccinated globally, stated Ng.
In addition, Top Glove’s plans to checklist in Hong Kong — its third inventory itemizing after Malaysia and Singapore — additionally triggered worries that the corporate is elevating funds in anticipation of a weaker outlook, he stated.
But these considerations will seemingly ease, stated Ng. Here are his goal costs for Malaysia’s glove shares.
The analyst stated the leap in common promoting costs of gloves isn’t sustainable, and forecast a 30% to 35% fall in costs in 2022. Still, costs will seemingly stay above pre-pandemic ranges for the following two to three years at the very least, he stated.
That’s partly as a result of demand for gloves is predicted to stay elevated in the approaching years because the medical sector makes use of extra private protecting tools, stated Ng.
He added that he agreed with the report by consultancy Frost and Sullivan and commissioned by Top Glove, which projected demand for disposable gloves to enhance by a mean 15% yearly for the following 5 years.
Such development in demand would come alongside a 20% annual enhance in provide in the following few years, stated Ng.
Another growth that has pushed recent value actions in Malaysian glove shares is Top Glove’s deliberate third itemizing in Hong Kong.
The firm stated final month that it utilized for a “dual primary listing” in Hong Kong that might elevate up to 7.7 billion ringgit ($1.87 billion). It stated it is going to hold its present major itemizing in Malaysia and secondary itemizing in Singapore.
Investors reacted negatively to the information on considerations that the extra itemizing would dilute Top Glove’s earnings per share.
Still, Ng has maintained his “buy” ranking for Top Glove and its Malaysian friends. He stated the decline in share costs have introduced valuations down to ranges that are “too cheap to ignore.”
The analyst added that in contrast with their worldwide counterparts Malaysian glove makers are delivering larger dividend yield and higher return on fairness — a measure of monetary efficiency.
Top Glove on Tuesday reported a surge in quarterly earnings to 2.87 billion ringgit ($695 million) for the three months ended February, from 115.68 million ringgit ($28.03 million) a 12 months in the past.
The firm stated international demand for gloves continued to be “strong,” with the Covid pandemic spurring a rise in glove utilization and heightened hygiene consciousness.