MIDF Research believes that that share prices of both companies have bottomed and expects both stocks to rise in the near-term due to several catalysts such as potential spread of the MERs-Cov infection. — Reuters photo
KUCHING: The time is right to buy shares of glovemakers Top Glove Corporation Bhd (Top Glove) and Hartalega Holdings Bhd (Hartalega) as their prices are currently depressed.
Researchers with MIDF Amanah Investment Bank Bhd (MIDF Research) said it was an opportune time for entry as
Top Glove and Hartalega’s share prices are currently at a two-year low and eight-month low respectively.
“Year-to-date (YTD), Hartalega’s share price dropped 12 per cent to RM6.35,” the analysts said. “Meanwhile, Top Glove’s
share price dropped by a larger quantum of 17 per cent YTD to RM4.76.
The lacklustre share prices are largely attributable to the reduction in average selling prices (ASP) of gloves as a result of lower raw material prices, MIDF Research said. The price of natural centrifuged latex fell by 15 per cent td to RM4.51 per cent per kg from RM5.31 per kg.
“Similarly, the price of nitrile also fell, but by a smaller quantum of six per cent YTD to US$1,35 per metric tonne (MT) from US$1,445 per MT,” it added. “Due to the depressed raw material prices, customers have demanded for lower ASPs.
“Hence, in order to maintain revenue growth, most glove players are forced to increase their production volume. However, for players such as Top Glove, several orders had to be rejected due to the unreasonably low prices requested by customers (to avoid market cannibalism).
“This has affected its revenue and earnings in 4QCY13 as the volume decreased by 8.5 per cent during that quarter compared to 3QCY13.”
MIDF Research opined that share prices of both companies have bottomed. It expects both stocks to rise in the near-term due to the potential spread of the Middle East Respiratory symptom coronavirus (MERs-Cov) infection.
According to the World Health Organization (WHO) assessment on April 24, 2014, a total of 254 people have been infected with MERs-Cov and there have been 93 deaths (between April 2012 to April 24, 2014). The WHO assessment also stated that the MERs-Cov has spread to a total of 14 countries including Malaysia and Philippines.
“MERs-Cov is believed to have the ability to be transferred from human-to-human as 75 per cent of the confirmed cases were secondary cases (acquired infection from another infected person).
“We believe that glove demand will increase especially from the Middle East as increasing awareness in people to prevent the spread of the MERs-Cov infection.”
Raw material prices are also expected to increase in the near-term, with MIDF Research anticipating for glove makers to benefit by increasing their ASPs to maintain their revenue growth. The management of Hartalega concurred, noting that increasing nitrile butadiene price is too low now.
Meanwhile, Hartalega’s New Generation Complex (NGC) is expected to start operating at least two production lines in October 2014 and Top Glove will be completing two factory expansions, namely Factory 27 and Factory 29 in May and December 2014 respectively.