Trying to Make Sense Bursa Investments
Top Glove, Hartalega, Kossan: JP Morgan Reconfirms Glove Price Targets Amid Dwindling Paper Profits of Glove Short Seller
As reported by The Edge, on April 15, JP Morgan reconfirmed their price targets for the 3 glove companies under their coverage since December 2020. A reminder that the infamous price targets are: Top Glove: RM3.50; Hartalega: RM8.50; Kossan: RM3.80.
The timing of this "reconfirmation" is surprising, because it comes at a moment when nothing of particular significance is happening in regards with the business of these companies. We did not see a reconfirmation when the quarterly results of any of the companies were released, and we did not see a reconfirmation when the CBP ban on Top Glove's US imports was confirmed - arguably the most important business events for the industry in the last couple of months. The only event that correlates with this sudden spurt in action by Jeffrey Ng and Y Y Cheah, CFA is the uptrend in stock prices for these companies. Purely coincidentally, the uptrend doesn't bode well with another infamous market player - the "mysterious" glove short seller.
Last week, the amount of money thrown at the "big gloves" short position since its opening on January 4, crossed the RM3 billion mark. The total value of short positions opened since the beginning of the year on any stock on Bursa is a little over RM4.3 billion, so the short positions on Top Glove, Hartalega, Kossan, and Supermax represent 71% of the entire value of short positions on Bursa. Of this, 59% is the portion of the short position dedicated specifically to Top Glove, i.e. the value of the Top Glove short position alone represents 41.7% of the total value of short positions opened on Bursa this year.
Short Seller Paper Profit Dwindling
As the short seller had open short positions at dividend ex-dates, the short seller is obliged to pay out the corresponding dividends to the original owners of the shares (i.e. the lenders of shares). This therefore lowers the breakeven price at which the short seller might make profits from covering their short positions (i.e. buying back the shares). According to my calculations, and excluding factors that are unquantifiable due to lack of public data (such as borrowing fees, brokerage fees, management and administrative fees, changes due to partial closing of positions, third-party participants' share in the short selling), the breakeven price for the short seller for each of the 4 counters is as per below:
| Stock | Short Seller Breakeven Price | Friday Closing Price | Mark-to-Market Profit/Loss |
| TOPGLOV | 5.46 | 5.57 | (34.4 million) |
| HARTA | 10.86 | 10.12 | 46.7 million |
| KOSSAN | 3.88 | 3.85 | 2.6 million |
| SUPERMX | 5.43 | 5.31 | 5.6 million |
Note that at the bottom of the market prices of these 4 glove companies, the theoretical paper profit of the short seller was in excess of RM200 million. This value has dropped, as of yesterday, to RM20 million. In the whole equation, the price movement of Top Glove is key as the short position on that company's stock is by far the largest. Once again coincidentally, JP Morgan's "reiteration" note was released at a time when Top Glove's share price closed at RM5.44 - curiously near to the calculated theoretical breakeven price for the short seller. All of this is of course likely purely coincidental.
To add to that, information trickling down from channels has it that brokerage houses are searching vigorously for Top Glove and Supermax shares to borrow. The offered interest rates are considerably higher than those for other stocks, signifying urgent need and scarcity.
JP Morgan Financial Year ASP Estimate
I have previously commented on the logic-wise very poorly constructed JP Morgan report. You can read my post on that here. Fortunately, even the most poorly constructed analyst report requires quantitative inputs on which we can comment and which we can compare to inputs of others. The only new piece of data JP Morgan have shared is their estimates on forward blended ASPs for the corresponding FY2022 (note - financial years differ in terms of calendar time period) for each of the 3 companies under their coverage. I will share them with you without further commentary:
| Company | JPM Estimate | Consensus Estimate* | JPM to Consensus Difference |
| TOPGLOV | $30 | $40 | -25% |
| HARTA | $36 | $58 | -38% |
| KOSSAN | $30 | $37 | -19% |
*NOTE: The "consensus" is based on what is provided in JP Morgan's report. They have not provided extra details on how they have calculated this consensus estimate.
JP Morgan Calendar Year ASP Estimate
Additionally, JP Morgan have provided their blended ASP estimates for calendar year 2022. Interestingly, they believe that all 3 companies are going to have the exact same blended ASP, even though they manufacture a very different mix of products, they have very different target markets and main clients. Nevertheless, their estimate for all 3 companies for CY2022 is for a blended ASP of US$30. According to Frost & Sullivan, the ASP for nitrile gloves in CY2022 is going to be US$53.50, and for latex gloves it is going to be US$26.50 (see here).
As mentioned, each of the 3 companies produces a very different mix of glove products. Top Glove have previously confirmed that their production lines allow them to change between production of nitrile gloves and latex gloves, depending on what product is in higher demand and offers a better profit margin. However, I calculate the CY2022 blended ASP for Top Glove based on their official production capacity per type of glove, and it comes to a little over US$40 (I take into account their vinyl glove capacity, too). Hartalega produces almost entirely nitrile gloves, so their ASP would be approximately equal to the F&S estimate - US$53.50. Kossan produces approximately 80% nitrile and 20% latex gloves, so their blended ASP would be US$48. Thus, let's call these estimates the Frost & Sullivan estimates and compare them to JP Morgan's:
| Company | JPM Estimate | Frost & Sullivan Estimate | JPM to F&S Difference |
| TOPGLOV | $30 | $40 | -25% |
| HARTA | $30 | $53.5 | -44% |
| KOSSAN | $30 | $48 | -37.5% |
Instead of a Conclusion
A famous fable about a boy repeadly scaring the villagers that a wolf is attacking their sheep flock comes to mind. This is, of course, purely unrelated to my post above. It comes to mind coincidentally.
Important disclaimer: Any views expressed are for informational and discussion purposes only. None of this information is intended as, and must not be understood as, a source of advice. It is imperative that you always do your own research and that you make any decisions based on your personal situation and your own personal understanding.
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Discussions
13 people like this. Showing 38 of 38 comments
am I the only one agree with JP Morgan? When it comes to money, we have to be realistic..
2021-04-17 12:30
JPM is in for a good roasting and they bloody well deserve it. Thanks Ben for the excellent write up.
2021-04-17 12:43
Gohhimhock, please do elaborate what you agree with JPM. Thank you very much.
2021-04-17 12:44
Well the fable tells about a mischievous boy having fun with his lies and finally it came true but no one believed him.
However, here we do see the truth of dwindling glove price unfolding on the board.
It will remain a truth.
DISPOSABLE glove supporters believe the story of a cat thinking it is the lion
or a chicken pretending to be an eagle.
2021-04-17 14:33
A lot of retailers have been victims of JPM rss scare tactics in recent months. Even big gun like Tropicana also succumbed to it.
It's time we stay united by not selling at loss because your loss is JPM's profit.
2021-04-17 14:44
Enter the China Fund to fight JPM, kaput kasi sama itu pendek sellers...hahaha
2021-04-17 17:53
A timely piece of good writing, Ben.
With regards the article of Tropicana disposing TG shares, I was made to understand that the realized losses from the disposal was hugely offset by the dividend payouts and they still hold a considerable amount. Can someone confirm that?
2021-04-17 19:13
LimitUp, gohkimhock, Goldberg, batman666, alwinchg, Bizfuneng, Targeted, Dante5566, George Leong, signn, TheOwlsandWolves, Anthem2, thank you for your comments.
Anthem2, according to the announcement, Tropicana still hold 12,470,000 shares of Top Glove. They assume RM2.6 million loss on the disposal of 1,850,000 shares, so RM1.40 per share. Since they've bought the shares in December, they were entitled to two dividend payments - RM0.165 + RM0.252. So their loss is about RM0.99 per share. They don't provide much of a justification on this action, but they say they will be using the proceeds for working capital. Here is the announcement: https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3148964
2021-04-17 19:45
The down reconfirmation look going to right.Because monthly still hooking down.Tht the danger point.Expect glove stock will tank back in 5-10 trading days starting 19/10/2021.
2021-04-17 22:21
Tropicana was probably in need of immediate funds and this to them was the best way forward without incurring further losses. If it was a loss of confidence in TG , it definitely would have been more than just the 13% of their total holdings.
2021-04-17 22:44
Those directors responsible for the losses should be punished mah...!!
For a start must cut their directors fees loh!
Posted by Anthem2 > Apr 17, 2021 10:44 PM | Report Abuse
Tropicana was probably in need of immediate funds and this to them was the best way forward without incurring further losses. If it was a loss of confidence in TG , it definitely would have been more than just the 13% of their total holdings.
2021-04-17 22:49
JPM’s research is low quality with lot of flows. They don’t even know bother to adjust the target price for TG following the additional special dividend & HK secondary listing announcements.
By end year 2022, shareholders of TP might have collected closed to RM1.50 to RM2 per share dividend. Whether this dividend paid is added back in JPM TP? Seems like they don’t bother to answer neither.
2021-04-18 06:39
Nothing is coincidence in this world of stock market. Their report is with intent. Why should Bursa open RSS since most are played by foreigners and have consistently selling Malaysian equities. "opinions only".
2021-04-18 08:46
A YEAR has elapsed and the world is currently facing a resurgence of covid 19, in fact the numbers are registering new highs each day- even with the rollout of vaccines.
What does this say ?
1- Covid 19 will be around for a very long time.
2- Vaccines are not a cure - it does help by reducing the mortality rate. Thank God for this.
3- More deadly and virulent strains from mutations are on the rise and may render existing vaccines ineffective. To survive the virus mutates in to strains that may escape the defence brought about by vaccines.
4- Too much greed in this world especially the rich nations depriving the poor nations affordable vaccines- this will render herd immunity for the world impossible.
5- Premature opening up of economies by most countries and the believe that rollout of vaccines will just ward off the virus. This false sense of security is disturbing.
6- Refusal to adhere to SOPs- particularly in western countries.
JP Morgan and their cohorts just refuse to accept the above and is so determined to destroy Malaysia most valuable sector ie GLOVES. .
It is very sad that they have found willing lenders of shares ie EPF the main betrayer to lend their shares to JPM to forcibly bring down the value of the Big 4. EPF you have blood on your hands and should be brought to justice.
Demand for PPEs especially Gloves will be elevated for a long time. The world is currently facing an acute shortage and is going to persist for a long time- even with new and expanded capacities
As Malaysians, we should all be united and act against these Foreign Manipulators-JPM.
2021-04-18 11:25
Did Tropicana really lost money by disposing some of their shareholdings? It depends on how one looks at the situation. As far as I know Tropicana bought their shares on different occasions and with different prices. Some higher and some lower. I read somewhere the amount sold were in fact higher than the lowest price they paid for a portion of the shareholding. Based on average, yes, they sold at a lost as far as we can see at this point. However, this may not be the final answer because as we all know Tropicana is still holding a bigger amount of the share. If TG price is to increase subsequently much more than their purchased price and if they manage to sell the balance at the much higher price then it is not a lost as we see now. The show isn't finish until the end. My 2 sen opinion.
2021-04-18 22:24
Superb report. India and the world experience 3rd or 4th wave. Msia gloves co still cannot meet demands. Vaccine too not totally effective. Let's see 3rd, 4th, 5th wave in gloves shares.
2021-04-19 08:33
Ben Tan, I enjoy reading your articles. From the content, it is clear you have given much time and effort in the research and you back them up with figures and data. Great analysis, you deserve much recognition compared to many unscrupulous "analyst" from IBs. Keep it up~
2021-04-19 08:37
Demand for nitrile gloves drop 67% from Dec 2020 to Feb 2021.
Nitrile=510 days to 200 days
Note: Last meeting in April 2021 for ESG issue, updates from Tan Sri is 170days
Refer to Slide #13 (dec 2020)
https://www.topglove.com/App_ClientFile/7ff8cb3f-fbf6-42e7-81da-6db6a0ab2ef4/Assets/corporate_calendar/TG%20IR%20slide_091220_CLSA.pdf
Refer to Slide #9 (Feb2021)
https://www.topglove.com/App_ClientFile/7ff8cb3f-fbf6-42e7-81da-6db6a0ab2ef4/Assets/corporate_calendar/TG%20IR%20slide_240221_Daiwa.pdf
Now the page for latest slide in April had remove this statistic.
Up to each of you to define what it means.
2021-04-19 11:49
Michael Kwok, Anthem2, stockraider, will75, Likey_Greek, henry888, Goldberg, bpsiah, super168, skyz, newbie80808, thank you for your comments.
newbie80808, you seem to be missing a lot of important points, most of which are covered in the same slides you are quoting:
1) The sequence of events is that from the normal lead time of 30-40 days, the lead time increased to 510 days for nitrile gloves and 340 days for latex gloves. Only after that it "decreased" to 200 days for nitrile gloves and 295 days for latex gloves. In other words, the "shortened" lead time is still 5-10 times longer than the lead time in normal times.
2) The reason for the decrease in lead time, as explained in the slides, is due to new production capacity coming on line (+20%), and conversion of latex glove production lines to nitrile glove production lines (hence the decrease in lead time for latex gloves is much smaller).
3) Another factor is that between the two presentations you are quoting, there is a time period of over 100 days. It is normal and expected that lead time will revert to close to normal once the emergency demand due to the harshest phase of the pandemic is satisfied. As Top Glove's production lines for nitrile and latex gloves are interchangeable, let's take the simple average for lead time: in December 2020 = 425 days, and in February 2021 = 250 days. This means that the actual decrease in delivery time for the period is 75 days, which is 17.6% decrease, explainable with the 20% increase in production capacity.
2021-04-19 13:41
i ever read a comment in investing.com. He commented don't trust JPM, they never meet the forecasted. I realized many others also agreed with the statement. I think they are not provide a good market analysis but try to manipulate the market.
2021-04-19 16:18
@Ben Tan
Is it a typo in your last sentence?
............actual decrease in delivery time for the period is 75 days, which is 17.6% decrease, explainable with the 20% increase in production capacity.
Should it be:
.........actual decrease in delivery time for the period is 175 days, which is 41% decrease..........
2021-04-19 18:19
paperplane, Yong Ken, thank you for your comments.
newbie8080, it's not a typo. As I explained, between the dates of the two presentations you are quoting there are 100 days, so you can discount that period as -100 days of excess emergency demand due to the pandemic.
2021-04-19 19:57
JP Morgan is a double headed snake. be careful.
On one hand giving negative on gloves, on the other hand, foreign funds are the largest buyer of glove stocks for the past 2 months.
very simple, FF won't come in when fully valued or priced in, then where is the meat? They have to come in when its way undervalued, and JPMoragn report is doing that favour for them .
2021-04-19 23:45
pharker, newbie5354_, thank you for your comments.
newbie5354_, EPF has been accumulating Top Glove, Harta, and Kossan for a while now. They are not required to release announcement if they buy Supermax as they are not a substantial shareholder. You can see: https://klse.i3investor.com/blogs/bursainvestments/2021-03-03-story-h1542003080-Top_Glove_Hartalega_Kossan_Supermax_Who_Is_Buying_and_Who_Is_Selling_Gl.jsp
2021-04-20 13:02
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Jpm is going to get screwed by the market.
2021-04-17 12:11