Trading With A View
(Tradeview 2020) - In Conclusion, Is the Glove Sector a
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Publish date: Sat, 20 Jun 2020, 02:00 PM
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Author of Once Upon A Time In Bursa : The MONEY Equation. A corporate strategist, lawyer & avid investor who has two great passion in life: Financial Markets & Real Estate. A true fundamentalist and financial writer motivated to tip the scale in favour of retail investors. Believe the stock market can be force for good.
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Contact for update : tradeview101@gmail.com
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Dear fellow readers,
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Following up with our earlier article "Commentaries on The Recent Glove Sector Selldown Since Top Glove Results Announcement", this time around we are studying the sector during the previous H1N1 pandemic and will try to draw some key-takeaways that could be useful for gauging the current Covid-19 situation. To ease our analysis, we only consider the earnings trend and share price performance of Top Glove, Supermax & Hartalega.
According to Wikipedia, H1N1 lasted for about 19 months, from Jan 2009 to Aug-10 while vaccine for the influenza was approved by the FDA in September 2009. During this period, we saw quarterly earnings of glove companies rising by c.2-4x to its peak and they took 5 quarters to do so (reported sometime in March-May 2010). More amazingly their share prices soared 4-10x (doubled that of profit growth), peaking in July 7 2010 (despite FDA approving the H1N1 vaccine in September 2009); hence, this goes to show that share prices are strongly correlated with quarterly profit trend.
As for Covid, this began in December 2019 and is still ongoing; no vaccine has been found and approved yet. That said, we have only witness 1 quarter of glove sector earnings performance and it was already mind blowing:
(i) Top Glove tripled;
(ii) Supermax doubled whilst;
(iii) Hartalega unfortunately fell 5%.
Based on our findings, consensus is looking at explosive earnings growth of 2-5x (at peak levels) while the most bullish analyst in town is estimating 3-9x increase. However, share prices only jumped 2-5x unlike during H1N1 where it doubled that of earnings growth; this clearly suggest that glove stocks potentially still have legs to run further. Moreover, valuations look attractive:
1. Top Glove is trading at 18x P/E vs 5-year average of 22x. When we take the EPS of the most bullish analyst, P/E is only 11x.
3. Hartalega is trading at 46x P/E vs 5-year average of 32x. Again, it would fall to 28x if we use the EPS of the most bullish analyst.
Thus, we believe the recent selldown presents a good opportunity to consider accumulating; this is in spite of the concerns of windfall tax and massive capacity expansion of peers in China.
1. Historical Valuation and Future Earnings
Firstly, we feel consensus is a little too conservative (2-5x) and should play catch up to the earnings projection of the most bullish analyst (3-9x); this is because the impact of Covid-19 is far more profound than H1N1 but consensus is forecasting only similar earnings growth profile (2-4x). Hence, assuming the windfall tax is to shave some 20% of profit projected by the most bullish analyst, P/E for Top Glove, Supermax & Hartalega is estimated to rise to 14x, 11x & 35x, respectively; when compared against historical average, valuation of Top Glove & Supermax still appear to be inexpensive.
2. The Rising Might of China
As for the massive capacity expansion by Chinese peers, it will take more than the course of 2 years. Building an automated technology driven manufacturing facility is not the same as building a makeshift hospitals in 10 days. Certifications, compliance with FDA, global audit / scrutiny / need for transparency are all prerequisite to become a global supplier of gloves. Additionally, our local glove players will also have similar plans and should be able to defend their market shares. Besides, a prolonged trade war with the US may not bode so well for Chinese players. Europe, US, Australia (G7) have taken a very protective stance against the rise of China resulting in distrust, tariff wars and propaganda attacks. Therefore, all in all, we are not overly disturbed with what they are attempting to achieve.
3. Change in Behavioral Pattern / New Normal
We think after the Covid-19 episode, the awareness of good hygiene has increased and will further support the demand for gloves. Moreover, the % of glove cost to total healthcare expenditure is relatively insignificant. Thus, glove prices may hold better than what most people think after Covid-19.
After considering all of the above, it is too premature to call it game over for the glove sector. Currently, there are only a handful of industries that can depict strong visible earnings growth. Furthermore, there are fears of a 2nd wave of Covid-19. Overall, consensus has a TP of RM20.28 (most bullish analyst: RM25) for Top Glove, RM8.22 (most bullish analyst: RM11) for Supermax & RM11.58 (most bullish analyst: RM17.50) for Hartalega. For us, we would not bet against these Malaysian industrialist who managed to put Malaysia on a global limelight. Of course this is our humble view, now it is your move.
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Food for thought:
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Discussions
5 people like this. Showing 16 of 16 comments
In this of environment u need to protect your downside & at optimise your upside potential mah...!!
Wtk remain a good selection that fulfil your stringent requirement mah.!
2020-06-20 14:30
Very good
Gloves now in MAJOR 3
Wtk in minor iii
So Wtk got more upside growth than gloves by virtue of it being still in primary school
Can buy more Wtk then
There is only one more now in kindergarden or pre school = WZ Satu.
This one is pre bull so will offer the best upside like Supermax when it was only Rm1. 73
Wz satu at 24 sen going back to its pre bauxite ban years of 2017 means Above Rm1. 50 then
So Wz satu has a potential upside of over 600%
2020-06-20 15:23
600%?
Can or not?
Of course can!
Calvin bought Supermax C87 at 34.5 sen and sold half at Rm2. 96 (still keeping half for higher)
How much is 34.5 sen to Rm2. 96?
It's 757% gain. Whooppee!!
So?
Anyting is possible if you can spot a potential
preBULL stocks
There is sifu pureBULL
So there are
preBULL stocks
presentBULL stocks like Gloves
postBULL stocks like dayang which is game over
2020-06-20 15:31
all sifus need a game and this is the perfect game for them....... the greater fool theory
2020-06-20 23:05
who are the desperado I wonder.... those shouting buys or those laughing?
2020-06-20 23:10
Well said. Sellers needs Buyers. Some late buyers will end up losers. The billlion ringgit question is WHEN?
2020-06-21 11:08
Who sold?
Qqq3..philip (2m+ topglove at average rm8+) n lot of tai ling ngong who hv sleepless nights after they sold..
2020-06-21 11:13
Is philip smiling or laughing after he sold all his 2m topglove few weeks ago?
U better ask him loh
2020-06-21 11:14
Riverstone - $3.31, Topglove - RM 20.56. Supermax - RM 10.86, Kossan- RM 11.32 and Hartalega - RM 16.44. Compared to when we highlighted in our back to back articles in June glove sector plunge, where the price was (Riverstone - $2.28, Top Glove - RM 14.60, Supermax - RM 6.80, Kossan - RM 7.70, Hartalega - RM 11.60), the entire sector has rerated entirely. Even abroad, UG Healthcare is S$1.81, Sri Trang Gloves is THB 68.25, Sri Trang Agro $1.53. The sector with good earnings outlook with sufficient tailwind is this sector. Hence, do not rule out further upside as the earnings / reporting season approaches.
2020-07-08 18:23
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CS Tan
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
stockraider
Wtk share price creeping up mah...!!
MUST JUMP IN VERY EARLY LOH...!!
In a nutshell u cannot go wrong investing in WTK why ??
1. It has net cash of Rm 371m even more than topgloves
2. It has more prudent acquisition on its neighbour plantation increasing its ha size and most importantly enhancing its efficiency mah....!!
3. The palmoil price has started rising.
4. The timber price has stabilise & recovery
5. Its listed tape business under listed subsidiary CIC is doing well with covid19 social distancing.
6. Govt incentive on house buying will boost demand for plywood loh..!!
7. Most importantly the CEO of WTK has started buying a positive vote of confidence mah...!!
8. The company has been doing aggressive share buy back recently.
9. Wtk has declare a dividend of 1 sen giving a 3% pa dividend yield.
10. Its NTA is more than rm 2.00 loh....!!
Yes buy Wtk for its future cpo increasing output due to palm trees maturity plus increase hectarage and increase in price, and also please remember there is a palm oil mill too...which wtk can benefit efficiently too.
correctloh....that means WTK palm 5 to 8 years old which are young & increasing maturity has potential high growing future output mah....!!
palm tree generally takes 4-6 years, when it start to grow from seed to its highest at around 10 years old.
That means wtk benefits from increasing palm output plus increase in milling profit mah...!!
A double happiness profit for wtk mah...!!
If u invest in Wtk u really sleep well bcos it has the highest margin of safety and quality mah...!!
U cannot go wrong investing in plantation near growing city like MIRI the 2nd largest city in sarawak and near a rich Brunai just a stone throw away mah...!!
The director is willing to buy 37 sen and now it is 36.5 sen it is a bargain buy mah...!!
This is a good indicator to buy & buy more loh...!!
Posted by calvintaneng > Jun 12, 2020 7:32 PM | Report Abuse
Very good latest news
Director bought 300,000 Wtk shares from open market at 37 sen
DATO' SRI PATRICK WONG HAW YEONG 11-Jun-2020 Acquired 300,000 0.370
This is the highest amount and the highest price since March 10 the 2020
Why Wtk is likely to do much better than Rsawit leh??
This is bcos Wtk is very cash rich mah...!!
2020-06-20 14:26