Shares of most Malaysian glovemakers continued to fall yesterday, in the absence of a strong catalyst to lift the sector.
Despite several stock research reports issued in the past few days giving a positive outlook on the sector, “the market is not acting on it”, said Maybank Investment Bank vice- president and head of retail research, Lee Cheng Hooi.
Reports released this week include those by CIMB Research and OSK Research, both with positive “overweight” calls on the sector, while reports by AmResearch and HwangDBS Vickers had negative calls.
Yesterday, Top Glove Corp Bhd eased four sen or 0.65% to RM6.16, Supermax Corp Bhd lost 13 sen or 2.17% to RM5.86, Latexx Partners Bhd lost two sen or 0.58% to RM3.43, Hartalega Holdings Bhd dropped nine sen or 1.15% to RM7.75, while Adventa Bhd fell three sen or 1.06% to RM2.80.
Kossan Rubber Industries Bhd bucked the trend for the third consecutive day, rising two sen or 0.53% to RM3.82 yesterday.
Lee said all glovemakers had been on a downward trend since the middle of July.
In contrast, the broader- market FBM Emas Index has risen 1.3% to 9,140.03 and the benchmark FBM KLCI is up 1.14% to 1,349.33 since July 15.
“Volatility (for glovemakers’ share prices) may continue for the next two or three months in my opinion,” said Lee, who is also the chief chartist at Maybank IB.
The shares of glovemakers have been sold down on expectations of lower demand since the various global flu epidemics have now come under control, reduced margins from higher latex price, impending overcapacity, and also a weaker US dollar that could reduce earnings reported in ringgit.
Glovemakers have responded this week to queries from The Edge Financial Daily in relation to some of these concerns.
Glovemakers’ main raw material, latex, had reached a peak of RM7.75 per kg in April due to the El Nino effect but was down to RM7 per kg with the industry anticipating prices to go lower, said Top Glove executive director Lim Cheong Guan.
Kossan’s senior manager of group corporate affairs, Edward Yip attributed the high latex prices to “prolonged wintering period” this year and also expected prices to fall.
He said it was not an unexpected event but rather a seasonal issue that happens every year.
Glovemakers generally have pass-through agreements that allow them to pass the cost of higher raw materials to customers.
On concerns of falling demand since the flu epidemics have eased, all the four glovemakers who responded to TEFD’s questions said orders from the US had actually risen over the past several months.
However, Kossan’s Yip does concede that growth of orders may have slowed as customers wait for the expected drop in latex prices later this year.
As for overcapacity, the four glovemakers — Top Glove, Hartalega, Kossan and Latexx — who responded were all confident of their capacity needs.
Written by Loong Tse Min
This article appeared in The Edge Financial Daily, August 13, 2010.
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