CEO Morning Brief

Latest Glove Counters' Rally Loses Steam Amid Profit-taking

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Publish date: Fri, 01 Dec 2023, 08:51 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (Nov 30): Buying interest in glove counters, which saw a resurgence this month as investors took their cues from the spike in local Covid-19 cases and an upsurge in respiratory illnesses in China — besides notable improvements in some glove makers' bottomline — appears to be tapering off.

The rally that started early this month pushed up glove counters' shares, with all of the big four players — Supermax Corp Bhd, Top Glove Corp Bhd, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd — ending November at higher prices compared with end-October.

Gains in the glove counters helped push Bursa Malaysia's Healthcare Index higher. The index jumped to a six-month high of 1,867.02 last Thursday, before easing to 1780.63 at market close on Thursday. It gained 6.63% or 110.76 points in November, against end-October's 1,669.87.

Coinciding with some improved financial results from some of the major glove makers during this corporate reporting season, the Health Ministry announced last week that the country had recorded 2,305 Covid-positive cases between Nov 12 and Nov 18, up 28% from the 1,801 cases logged between Nov 5 and Nov 11. On the same day, the World Health Organisation reported an upsurge in respiratory illness among children in Northern China, saying it has been monitoring the incidents since mid-October.

But market observers believe the glove rally has petered out, as investors take profit after November's run.

“With the glove industry bottoming out, all glove stocks have rebounded, triggered by the less negative outlook. Share prices have surged 20% to 30% in the past one month, hence it is healthy to have a correction as nothing goes up forever,” TA Investment Management Bhd chief investment officer Choo Swee Kee told The Edge, saying share price should reflect stocks fundamentals.

Apex Securities Bhd's research head Kenneth Leong said glove share prices were coming down as they rallied beyond their fundamentals, and is expecting a further pullback in the near term.

"It's the same case for Supermax today," Leong said, noting the stock was being sold down after the release of the company's quarterly results. Supermax dipped 10 sen or 10.19% to close at 92 sen on Thursday. “The current share price is also deemed to be fair as it is around the consensus target price levels,” he said.

The ongoing pullback may, however, present a buying opportunity for those investing with a longer-term perspective, Leong said.

For now, glove stocks are expected to be range bound, said Rakuten Trade Sdn Bhd's equity research vice president Thong Pak Leng, who likewise think the recent pull back in glove shares was due to profit-taking activities and an overbought situation.

Top Glove, the world's largest glove manufacturer, saw its shares price slide to 81 sen on Thursday, from its highest this month of 90 sen on Nov 24. Compared to its October closing of 73 sen, the stock has gained 10.95% month on month (m-o-m).

Hartalega, which snapped a loss-making streak that dogged its last three consecutive quarters when it announced a net profit of RM27.7 million for the second quarter ended Sept 30, 2023 (2QFY2024), saw its share price jump to as high as RM2.62 on Nov 23 — up 26.57% from end-October's RM2.07. The stock pared some gains to close at RM2.40 on Thursday, still up 15.94% m-o-m.

Kossan's shares, which also touched its highest this month at RM1.75 on Nov 23, closed at RM1.61 on Thursday for a gain of 19.3% from end-October's RM1.35.

Like Hartalega, Kossan too managed to reverse its three consecutive loss-making quarters by posting a net profit of RM40.97 million for its July-Sept quarter. Its quarterly profit is also up 76.14% from the RM23.26 million it made in the corresponding quarter a year ago, thanks to better cost controls and lower raw material costs, as well as the sale of higher margin infrastructure products at its technical rubber products division.

Supermax, on the other hand, saw its share price slide below RM1 on Thursday after announcing a day earlier its fourth consecutive quarter in the red. But the stock, which closed at 92.5 sen — down from its highest this year of RM1.05 on Nov 28 — still gained 17.1% from its end-October price of 79 sen.

Read also:
Hartalega returns to the black in 2Q after three quarters of losses
Kossan returns to black in 3Q with better cost controls, lower material costs
EPF resurfaces as Kossan’s substantial shareholder
Supermax remains in the red, but narrows net loss in 1QFY2024
Top Glove posts larger 4Q net loss dragged by RM389 mil impairment

Source: TheEdge - 1 Dec 2023

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