I read this good post from fca70jia in topglove forum and I am reproducing it to my blog.

The smart CIMB analyst hit a jackpot

During H1N1, average orderbook was 4-5 months at max, and Malaysian glove makers enjoyed a minimum of 5 quarters of strong glove demand. Hence, we should expect at least 8-9 quarters of strong glove demand based on current order visibility of more than 1 year plus.

CIMB's view on glove...

Sector in focus: Rubber Gloves

Recommendation: Overweight

Top picks: Top Glove (TOPG MK, Add, TP:RM 25.00) & Supermax (SUCB MK, Add, TP:RM 9.80)
Other calls: Kossan (KRI MK, Add, TP: RM11.50) & Hartalega (HART MK, Add, TP: RM14.60)

Key highlights:
Share prices of glove counters particularly, Top Glove and Supermax declined by double digits yesterday. In my view, this is unwarranted. I have also received a lot of enquiries on the reasons why glove counters were being sold down, and whether there has been: i) any fundamental changes, ii) weakening of Dow Jones and iii) massive profit taking on these stocks.

Comments:
1) Based on channel checks as recent as yesterday, there has been no fundamental changes to the glove sector
a. Vaccine rumors still persist, but there has not one there has gone beyond clinical trials. Everything else remains as speculation at this juncture, with any potential vaccine are only ready for mass production by mid-next year (trust me, I cover healthcare stocks too!).
b. Quantity and prices of ah-hoc orders continue to increase (more glove makers are allocating higher percentage of capacity for spot orders) and order visibility remains solid for glove makers (12-14 months).
c. ASPs hikes are still on the cards (ASPs increases are likely to be up to 1QCY20), with more orders being received in preparation for 2nd wave of Covid-19 in various countries.
d. Near-term earnings outlook remains beyond solid, with glove makers likely to post record-breaking profits in the next 2-3 quarters at the very least. In fact, recent noises suggest that some earnings forecast for certain companies are too conservative.

2) If we just zoom into yesterday’s share price data, Malaysia glove makers suffered big declines in share prices while share prices of China-based glove makers appreciated by 7-10% yesterday. Singapore glove makers retreated slightly today by 1.7-1.9%. Based on data from the past 7 days, Malaysia glove makers are the only ones having negative share price performances (-7.3% to -32%), while share prices of Singapore glove makers still appreciated slightly (+0.4% to +5.3%).

3) As a matter of fact, we understand that there has been an increase in enquirers for more glove orders (spot and recurring) given concerns of wave 2 of Covid-19. This is given concerns of occurrence of more Covid-19 cases with re-opening of schools and businesses on a global basis. We have begun to see a re-spike in cases in China, US, Russia, Brazil and etc. (While things are normalizing in Malaysia, cases of Covid-19 on a global scale are in fact increasing and not declining)

4) Based on our earnings forecasts, glove stocks valuations have retreated to a level which we believe are very attractive (TOPG is trading at 13.6x CY21 P/E while SUCB is trading at 19.7x CY21 P.E – Both companies are expected to post at least 200-300% yoy growth in FY21 net profit). I believe glove stocks are attractive as they are trading at teen P/E, and have 200-300% yoy earnings growth.

5) Take note that our earnings forecast have yet to account for any surge in gloves due to Wave 2. On average, our earnings forecast for glove companies are accounting for ASPs increase up to end-CY20, flat in 1HCY21 with a decline from 3QCY21 onwards.

6) Will glove ASPs and demand for glove fall off the cliff? Long and short answer is a definite NO.

During H1N1, average orderbook was 4-5 months at max, and Malaysian glove makers enjoyed a minimum of 5 quarters of strong glove demand. Hence, we should expect at least 8-9 quarters of strong glove demand based on current order visibility of more than 1 year plus.

While we expect ASPs to fall when supply-demand of gloves is more balanced (likely when order visibility is below 4-6 months), but i believe that ASPs of gloves will never go back to 18-22USD per 1000 pieces. This is like expecting face mask prices to go back to 18 sen per piece in 2HCY19 compared to RM0.80-1.50 per piece currently (China masks which has no quality standard being dumped at 50-60 cents per piece – this cannot happen in glove sector, as gloves are used in healthcare sector which requires FDA approval). (Bear in mind, face mask machines can be bought off the shelves, but building glove plants including installation of production lines need 18-24 months to reach a certain standard produce gloves with FDA-approved quality)

7) There is a fundamental change happening for the glove sector, leading to positive trends in the long term. I.e. Better healthcare awareness, more glove usage in more industries, higher usage of gloves per capita in more countries. Hence, glove ASPs will never go back to 18-22USD per 1000 pieces, with recurring usage driving higher consumption patterns.