Trading With A View
(Tradeview 2020) - The Argument For & Against Glove Sector. Pick Your Side. But Choose Wisely.
tradeview
Publish date: Thu, 10 Sep 2020, 12:29 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.
Contact for update : tradeview101@gmail.com
Telegram: https://telegram.me/tradeview101
Contact for update : tradeview101@gmail.com
Telegram: https://telegram.me/tradeview101
If there is a fear index created to measure emotions of investors for the past 1 week in Malaysia especially, I believe the chart of that fear index probably hit limit up for 5 consecutive days. This is no joke at all when we look at how much the healthcare index and specifically the glove stocks have fallen in the past weeks.
It is hard to imagine that these stocks were just touted as the Darlings of Bursa barely 1 month ago by the entire investment community be it banks, funds, media, retailers and others. What has changed in 1 month? Did the share price hit new high before leading to this protracted irrational selloff? Or did the factories burnt down? Or was windfall tax imposed? Or did US and Europe banned gloves from Malaysia?
Answer : None of the above. In fact, nothing changed. Fundamentally or structurally.
Vaccine news - factored in.
Windfall tax news - factored in.
Customs Detention - factored in.
Labour Remediation fees - factored in.
My 4 points above are just highlighting the major concerns in the analyst reports which are often bantered about by those who do not believe in the glove story. There may be more considerations like politics, raw material supply, USD strength and what not. But let's not go there yet as I will share in my table below.
Things will get worst before it gets better?
In many ways, I can say with conviction based on channel checks that the selloff really went into full gear when Local Funds / Institutions pulled the rag under the investors' feet. Meaning, they not only failed to support, they even sold the stocks across all sectors specifically Gloves. Some say they did it to book profit, some said they don't believe in the Glove story anymore due to vaccine, another extreme is taking the view that Glove stocks are overvalued. This is where I differ. I am of the view taking profit is fine, as it is part of risk management. However, I think the lack of understanding and knowledge caused a gap in deriving the value of Glove stocks. At the end of the day, it all comes to profit & growth. Neither are at its peak for Glove stocks. The earnings will continue to grow, the cash flowing into the company will continue to sustain and the visibility is for the next 12 months / 4 quarters. Not next 1-2 months.
In fact, the post Covid-19 Normalisation of ASP argument hold no ground at this juncture because no one knows when Covid-19 will end. Not Fauci, Not Nor Hisham, Not WHO and definitely not Trump. So how is it that the share price currently are trading at close to / below post Covid-19 ASP normalisation valuation at FY 2022/ 2023? This is what I cannot wrap my head around.
Furthermore, funds have no where to go for yield. Dividend yielding stocks was crushed this past year due to Covid-19, your traditional defensive stocks like Utility, Banks, Consumer staples, REITs are not giving the dividend as expected. But if any company or sector can deliver bumper dividend / special dividend, it is the Glove companies due to their cash hoard.
In a way, whilst writing this article, I have a mixed feeling. I feel the Local Funds shot ourselves in the foot and killed our own uptrend both in the Glove stocks & the Index, because of the naysayers and non-believers in the capability, entrepreneurial spirit and competitive nature of these Glove manufacturers. In fact, even Foreign Analyst from Foreign Banks are more bullish about our Glove Sector than Local Analysts from Local Banks. However, I am also excited with this opportunity.
In the event my conviction turns out right, this selloff has given many investors who dare to be a contrarian to take an opposing views against funds by buying on weakness to make huge returns. Fundamentals always prevail over short term trades. No one can time the market to perfection but share price moves in tandem with earnings. Earnings grow, valuation is cheaper, share price rises. It sounds simple but its the truth. I believe Local Funds & Institutions who threw the shares will realise they are making a huge mistake sooner than later.
So Which Side Are You On? Pick Your Side But Choose Wisely.
|
|
Against Gloves |
|
Record Earnings For The Next 4 Quarters (Minimum. May Be More than 4Q)
|
Vaccine Approvals / End of Covid-19 Pandemic |
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Committed & Lock In Orders with Deposit Paid
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Post Covid-19 Normalisation of ASP |
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Delivery Lead Time of 20 months
|
Too Expensive Valuation |
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Huge Cash Hoard / Net Cash position
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Windfall Tax |
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Potential Special Dividend / Yield Play
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Labour Remediation Fees |
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Further ASP Increase
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Higher Cost of Raw Materials |
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Additional Capacity
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Potential Oversupply from New Entrants Into The Market |
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Structural Change in Demand & Hygience Practices Post-Covid 19
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Weaker USD, Stronger MYR |
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Continuous Stock Piling by Governments
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US / Local Election |
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Rerating of Latex Gloves ASP as Nitrile Gloves waiting time far exceeds Latex Gloves
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End of Loan Moratorium, Retail Investors leave Bursa |
_______________________________________________________________
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Food for thought:
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Discussions
15 people like this. Showing 27 of 27 comments
I am not complaining about the current glove sliding "pandemic" bcoz I can buy what I couldn't one month ago. Thanks for the FEAR FACTOR
2020-09-10 20:21
i think 1 have to think beyond current situation.Be logic, It is no doubts that current glove supply market remains tight as orders have been stretched to at least next year. But how about in 2022 and there after when every 1 gets vaccinated? can their ASP remain as high as current and earnings still sustain? that remains a question. Currently many players started to venture in glove making, not only china but local players are ramping up production as well. If their current supernormal profit can still sustain beyond 2022 and grow then the current valuation is justifiable, what if it is an opposite? Would u still pay so high PE of 20 or more to buy a company if their growth cannot sustain? It is similar to a company selling its property to make 1 off supernormal extraordinary gain. Would you take in the gain to calculate the value or exclude it becoz it is 1 off item? Shudn't you also look at the earning for 2022 and 2023 as well when demand supply balance out?
2020-09-11 13:09
tq Tradeview 4 tis impartial writeup. Better den IB report. Always flipflop. Limpek u sound like reasonable person. I answer ur q:
1. 2022 every get vaccine, u sure? Can u confirm 100% will happen? I don't dare 2 confirm. But if u r right, will glove demand reduce? I don dare to confirm.
2. ASP high becos demand high supply low. Good argument. But u think China can ramp up supply 2 fight Msia when Nitrile Glove r innovation product of Msia with raw material available here, not China?
3. Ok la, u compare supernormal profit in 21 to selling property. U sell property no more property. Tts y one off. But glove company still manufacturing, even ASP fall, they catch up with new capacity 2 close demand gap. So not one off.
4. Do u noe how much profit Glove company going 2 make next 1 year?
5. U value stock bcos what might happen 2 years later and ignore next 1 year. Which analyst got crystal ball c 2 years ahead but ignore next year?
2020-09-11 15:16
Ok. Be logic just ask urself these few questions
1) Can the current supernormal ASP be sustained in the long run due to this pandemic? If everything back to normal, what will be the ASP in the future? Can the current earning be sustained forever?
2) Now so many local players are venturing into glov becoz of their lucrative profit.(e.g. Karex, AT, Gets, etc) Will the supply and demand gap be filled up more quickly than our initially thought?
3) A business is for a long term basis and not just for 1 or 2 years. Dun you think valuing a company based on its normalised earnings which can sustain in a long run will be more proper compared to just 1 or 2 year supernormal profit?
I think u know the answer
2020-09-11 16:42
I try 2 answer ur q :
1. I don noe wat happen in future bcos I don noe when pandemic end. If everything go bak 2 normal, I agree ASP go bk 2 normal. But in future is new normal, no old normal. Meaning, possible we r seeing shift in demand and behaviour pattern. Nothing is forever. But pandemic happen every few years. Each time glove price higher than b4. Aids, SARS, H1N1, EBOLA, Covid-19, what is next?
2. Tis one i am not worried. new players have no economies of scale, cost is not competitive, and management not skilled like big boys. All r Small players only announce news 2 push share price. Goreng kaki oni nia....
3. Tis point I agree wit u. Long term not short term. I nvr look short term. I look long term. All these companies have been growing long term not short term. Many years only bcome world champion. Valuation on normalise earnings is ok, but cannot ignore supernormal profit. Otherwise, we shud tell glove company next 1 year no nd open 4 business. Close shop. Open again 2 years later when pandemic over bcos market wont value ur next 1-2 years hardwork.
My last Q 2 u? Y u dont believe in Glove story when u c their results so good? Keep on getting better. Y u want it to die and value cheaply. Any other company can do better than Glove player in next 1-2 years? If got pls tell me, I go 2 buy now.
2020-09-11 17:02
So what do u think the fair value then? 10,12,15? Based on what assumption? If you are businessman, would you pay those prices to buy over the company? why not setting up your own new production line compared to buying over the company?
2020-09-11 17:17
Also u can take an example of the face mask, when the business is so lucrative, everyone venture in. Now look at the price of face mask. Facemask and glove are both PPE. the 1st already show u the results.
2020-09-11 17:23
Limpek, I answer ur Q :
1. Face mask cannot compare 2 Glove at all. One is low barrier 2 entry, 1 is high barrier 2 entry. Glove esp Nitrile Glove nd years of R&D, but mask, esp 3 play face mask u buy 1 machine from china u can do it immediately. Unless N95 mask which oso nd more skills. Msia is pioneer of Nitrile tts y Msia is champion of Gloves.
2. 1 Glove factory takes 9-18 months 2 set up. Do u think new player can easily set up and fight big boys. Big boys take many years 2 achieve economies of scale. New player sure suffer losses. No one can takeover bcos market cap big, but can take placement in shares, don nd set up production line.
3. My FV? I think CIMB, Credit Suisse, CLSA, UOB report is v fair & oso consider ur worry of post Covid-19 FY 22 /23 into their valuation. U can use d assumption from those report. Just dont use Macquarie report which is garbage.
I think u shud read author write up. Explain better den me.
2020-09-11 17:35
why macquarie report is garbage, their arguement is valid and reasonable. We look at long term not just short term.
2020-09-11 18:15
Flip flop and u-turn, eat back their own shits, conscience? integrity? Credibility? Reliability? Reputation? All go into toilet and longkang overnight. Ha, ha. Everyone can vote and judge clearly.
2020-09-12 14:36
I think investors look at things on 2 fronts ; consistent dividends (long term) and trading shares of whatever counters (regular short term). The Big 4 consistently pay out dividends twice a year. The smaller players just don’t quite have the cash.
It is entirely up to everyone to decide what their strategy is. Mine is as per my first sentence above.
2020-09-12 15:08
After 4 months, it is clear that you have chosen wrong
You must never forget that human kind will always prevail
That nothing can hold up to the human spirit
That this too, shall pass
I suggest you suggest to your paying followers to switch to true recovery stocks
Top pick is Genting Berhad
In 1 years time we shall see the performance of gaming companies vs the hype of gloves
The stock market is a voting machine in the short term, a weighing machine in the long term
Gaming is forever and eternal and will once again show its enduring quality
Sincerely,
EMSVSI
2020-12-23 17:09
It is clear Sekarang, the 1 who is wrong is u, EMSVSI. How much ur losses now Genting + GentingM + all the warrants? Counting chicken before it keluar? Lu ingat lu pandai?
2021-01-08 15:57
walao esmsvi ... seeing genting still wanna go in now meh ... tourist tak de but covid cases got lar ... really need to wake up already. i think those who keep promoting genting now really need to say sorry already ... to tradeview as well.
2021-01-08 19:38
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Im just gonna stick with glove.im in deep red almost 50%.might as well just ride and test my luck.
2020-09-10 14:20