CEO Morning Brief

Glove Counters Surrender Gains as Analysts Advise Investors to Stay Vigilant

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Publish date: Fri, 17 May 2024, 10:27 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (May 16): Shares of Malaysian glove manufacturers fell on Thursday, as analysts advised investors to remain vigilant over emerging concerns on US tariffs on Chinese goods, which will not take effect for another two years.

Shares of Top Glove Corp Bhd (KL:TOPGLOV), the world’s largest glovemaker by capacity, fell as much as 17% to RM1.11, marking its lowest point since June 6, 2023. At the market close on Thursday, the stock had pared some losses to settle at RM1.20 after 297,520 shares traded, valuing the company at RM9.61 billion.

Meanwhile, shares of Hartalega Holdings Bhd (KL:HARTA) fell by as much as 11% to RM3.38, its largest single-day drop since Nov 2, 2022. The stock ended the day at RM3.65, still lower by 17 sen or 4.5% giving it a market capitalisation of RM12.46 billion.

Other major glove stocks also experienced significant drops.

Supermax Corp Bhd (KL:SUPERMX) fell by 11.11% to 96 sen before trimming its losses to close at RM1.01, still 6.5% lower, resulting in a market capitalisation of RM2.59 billion. Kossan Rubber Industries Bhd (KL:KOSSAN) declined 9.6% to RM2.45 before settling at RM2.48, still off 9.5% valuing it at RM6.33 billion.

On a year-to-date basis, Top Glove have racked up gains of 33% while Hartalega has also risen 33%, Kossan 34%, and Supermax 7.5%.

Rakuten Trade in a commentary on Thursday, said the rally of these counters on Wednesday were only a knee-jerk reaction, and advocated investors to be vigilant.

It noted that the rally was following US President Joe Biden’s announcement of new tariffs that could impact US$18 billion (RM84.64 billion) worth of Chinese imports, including rubber medical and surgical gloves. This move underscores Washington’s aim to protect US industries from perceived unfair competition.

Separately, Hong Leong Investment Bank, in a note on Thursday affirmed that the imposition of tariffs could lead to Chinese players gradually shifting their target markets from the US to European and Asian markets, resulting in a near-term trade diversion from the US to Malaysia.

The research house said that if trade is diverted to Malaysia, most Malaysian players will benefit, particularly Hartalega and Kossan Rubber Industries.

“In addition, we highlight potential re-rating prospects for Kossan, considering its more favourable balance sheet and income statement profiles,” it said, while maintaining its “neutral” rating on the sector — with a “buy” rating on Kossan, a “hold” on Hartalega, and a “sell” on Top Glove.

Apex Securities Bhd, otherwise noted that glove manufacturers must continue to focus on cost optimisation, such as decommissioning inefficient plants, eliminating wastage, and reducing significant planned expenditures.

“We favour Hartalega and Top Glove, as we anticipate that Malaysian glovemakers will raise their ASP (average selling price) due to industry-wide increases in raw material costs, leading to higher margins,” the research house said.

Source: TheEdge - 17 May 2024

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