CEO Morning Brief

Top Glove Hits Limit Up, Glove Stocks Witness Two-year High

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Publish date: Thu, 16 May 2024, 09:40 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (May 15): Shares of Malaysian glove manufacturers surged on Wednesday after the US announced a slew of major tariff hikes on a wide range of Chinese imports including medical and surgical gloves. Tariffs on rubber medical and surgical gloves will jump to 25% from 7.5% in 2026.

Shares of Top Glove Corp Bhd (KL:TOPGLOV), the world’s largest glovemaker by capacity, hit limit up on Wednesday, closing 30 sen or 31.25% higher to RM1.26. This is the highest since June 2022.

Top Glove is the most actively traded stock on Bursa Malaysia, which saw trading volume surge to an eight-month high of 506.89 million shares. The figure exceeded its 200-day average volume by more than 11 times at 43.4 million shares.

Hartalega Holdings Bhd’s (KL:HARTA) share price, meanwhile, jumped to a two-year high of RM3.83, before paring its gains to close at RM3.82. Based on the closing price, Hartalega was valued at RM13.09 billion.

The other two major glove stocks Supermax Corp Bhd (KL:SUPERMX) closed at a two-year high of RM1.08, giving it a market capitalisation of RM2.94 billion, while Kossan Rubber Industries Bhd (KL:KOSSAN) settled at RM2.74 – its highest since September 2021 — valuing it at RM7.01 billion.

On a year-to-date basis, shares in Top Glove have risen by 40%, while Hartalega went up 41.48%, Kossan climbed 48.11%, and Supermax gained 14.89%.

“If we look at the share price reaction, I think it's a bit overdone. The [US tariffs] news will naturally cause investors to buy gloves. [But] it's a knee-jerk reaction. The key word here is election player for [Joe] Biden. Things are not confirmed yet, we have to wait for more clarity,” an analyst who covers the industry told The Edge.

The announcement by US President Joe Biden of new tariffs on US$18 billion (RM84.64 billion) worth of Chinese imports, including rubber medical and surgical gloves, underscores Washington's aim to safeguard US industries from perceived unfair competition.

Analysts said the tariffs effectively increase the cost of Chinese gloves, making Malaysian gloves more attractive for the US buyers due to the narrowed price gap.

This means Malaysian glove players have the opportunity to regain market share they lost to Chinese competitors following the price war that began in 2021.

Average selling prices for Chinese gloves are set to increase to US$20-US$21.25/1,000 from US$16-US$17 due to the tariff hike, which could essentially narrow the price gap between Malaysia-made products, which now sell at US$20 and are not subject to US import tariffs, said RHB Investment Bank in a note.

However, UOB Kay Hian analyst Jack Goh said investors might increasingly consider the medium-term implications of reduced Chinese glove exports.

On earnings prospects for local glove manufacturers, Goh said earnings are expected to rebound to pre-pandemic levels by 2026, driven by higher customer demand on restocking cycle, margin expansion on better efficiency and supply rationalisation, average selling price upcycle across major manufacturers, and stabilising input costs.

Besides the four major glove suppliers, shares of other glove counters were also on the rise. Comfort Gloves Bhd (KL:COMFORT) finished at a nearly two year high of 56 sen, giving it a market value of RM326.45 million. Hextar Healthcare Bhd (KL:HEXCARE), formerly known as Rubberex Corp (M) Bhd, saw its shares grow 15.22% to finish at 26.5 sen, while Careplus Group Bhd (KL:CAREPLS) increased by 24.59% to close at 38 sen, their highest level since January 2024.

Source: TheEdge - 16 May 2024

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Income

Recycling old newspapers???

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