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https://www.nst.com.my/business/2020/09/621894/stronger-2h-glove-makers

Stronger 2H for glove makers

KUALA LUMPUR: Glove makers are expected to register stronger performance in the second half (2H) of 2020, despite posting record profits in the second quarter (Q2), said Affin Hwang Capital.

Affin Hwang said the companies had guided that they were able to raise selling prices by around 10-50 per cent quarter-on-quarter (Q-o-Q) in Q3 2020.

"Given that the current lead times for normal orders have stretched to more than 18 months, we believe that the elevated ASPs (average selling prices) can at least sustain until June 2021.

"Given that new capacity from the new entrants is only likely to start in 2H 2021, and existing players are already operating at utilisation rates of more than 95 per cent, the overall supply is still insufficient to meet with current demand," it said.

Affin Hwang is not a surprise that the share prices for the glove sector had reacted negatively to the news of Covid-19 vaccines.

It said although the US Centre for Disease Control and Prevention planned to start distributing vaccines from November this year, the overall availability would be relatively scarce and would only be made available to healthcare professionals, essential workers and those in the high-risk group.

"Notably, these vaccines have yet to complete Phase 3 trials, and hence it is highly unlikely that they will be made available to the general public."

Affin Hwang maintained its "overweight" call on the glove sector as it believed that there was still upside to current share prices.

It said the current share prices had not fully reflected the upside from the latest ASP changes.

Affin Hwang's top picks are Top Glove Corp Bhd and Hartalega Holdings Bhd.

"We like Top Glove due to its exposure on the spot market, and also its role as one of the industry price leaders.

"For Hartalega, we believe that its earnings in coming quarters would see a sharp increase, as their ASPs were still below market rate in 1H 2020 given it had locked in its sales prior to the outbreak of Covid-19," it said.