Saturday, 14 November 2020

What Are Holding Back The Gloves?

Can I still buy Supermax? Should I hold Harta? Careplus has dropped a lot, is it a chance to accumulate? Should I average down on Rubberex? Should I sell Topglove now? Is it a good time to take profit on Kossan? Can I average up on Comfort? How about AT?

There is no doubt that gloves stocks are the hottest stocks in Malaysia stock market since Covid-19 pandemic.

Certain investors will tell you that it's stupid not to buy gloves stocks now, as gloves companies are the only companies that are guaranteed to make gigantic and increasing profits in the near future. 

The advice given is that you must ONLY have gloves stocks in your portfolio.

In early part of Covid-19 pandemic, I think no one would expect Supermax who usually earns around RM30mil net profit a quarter to be able to raise it substantially to RM800mil a quarter.

At this point of time, it's no secret anymore regarding how much glove companies can earn in this pandemic, everybody knows it from their excellent financial reports & forecasts. 

There is also no doubt that gloves companies will continue to make huge profit in the coming few years.

However, it is a different story how the market will value them in term of share price.

When the property market started to soften in year 2013, investors expected the profits of property companies to drop in the coming years. 

However, Matrix kept on making more sales and posting increasing profit year after year until 2019. As the market sentiment on property turned cautious, the share price of Matrix stayed flat.

Even though property stock's PE can be above 10 in normal time, it turns out that Matrix's PE always traded way below 10 at around 5-6x even though its profit did actually increase.

This is because people expect its profit to drop in the far future, even though its profit can still increase in the near future.

In term of gloves companies, people expect their profits to drop in the far future, even though its profits can still increase in the near future.

So the market sentiment for both scenarios is about the same, even though the companies, industries and situation are different.

In my opinion, the market sentiment on gloves has turned from super bullish to "cautious".

The profit of gloves companies might not drop to its pre-Covid era, but it will still drop from its height.

The demand of gloves and its average selling price (ASP) will still increase compared to pre-Covid era, but we cannot totally ignore the enormous increase in supply in the next 1-2 years.

The historical PE of big gloves companies might be above 20-30, but we never know how the market will value them in special circumstances like current unprecedented pandemic which is not the same as previous pandemics those gloves companies have gone through.

As gloves companies share prices have shot up hundreds to thousands percent, there is always a worry of an incredible fall once the music stop. So personally I will not give them a historical PE. A PE ratio of 10x is a safe bet in current situation. 

Despite recent positive news on Covid-19 vaccines, an effective vaccine might still be unavailable or inaccessible to most parts of the world in the next one year, no one knows for sure. 

But one thing for sure is, every day there is a HOPE (or worry to some) that effective vaccines will be available soon. 

Perhaps that's the main sentiment that hinder the share price progress of gloves stocks.

Will this negative vaccines sentiment go away? The answer is definitely NO.

It's not just that it won't go away, but we will probably hear more positive vaccine news from now on.

Will the availability of vaccines reduce the profitability of gloves companies in short term? The answer is also NO.

Early in the outbreak when investors were guesstimating the big profits glove companies can make, their share prices increased like crazy to PE ratio of 100x.

When the profits were confirmed to be so good since August, their share price started to drop in the last 3 months during the time when global new Covid-19 cases broke new high with second and third waves of cases in many countries including Malaysia.

At that time, investors might be worried about the potential windfall tax on gloves companies. However, the share price of gloves stocks are still hesitating to go up even though this doubt has been cleared after Budget 2021 2 weeks ago.

What do all these tell us?

If supernormal profits without windfall tax, record-breaking profit forecast, record high daily Covid-19 cases, new worldwide lockdowns and news of vaccine trial suspension are not able to rally the share price of gloves stocks to break new high, what else will?

I don't mean that you can't invest in gloves stocks or they are overvalued now. Gloves companies should be in an extremely good shape after the pandemic, and their PE ratio can only drop further in the next one year.

I still own some gloves shares as a diversification plan and I still expect its share price to reach its previous high. 

It's just that I don't give it a high PE or high expectation, and I'm a bit stupid to buy shares other than gloves.


  1. I would share my opinion on glove stocks at their current status, my opinion is based on mere speculation and likely to be wrong.

    "If supernormal profits without windfall tax, record-breaking profit forecast, record high daily Covid-19 cases, new worldwide lockdowns and news of vaccine trial suspension are not able to rally the share price of gloves stocks to break new high, what else will?"
    The above statement shows that all the good news for glove stocks have came out and known by all people in market. There is hardly any good news that can boost stock price of glove companies from now onwards. This normally indicate the peak of a trend. I suppose one "good news" that can rely on is their stock price drops a lot. It is a "good news" because those glove companies will then rebound and investor may make some profit from the price difference.
    As such, those glove companies may be good for short term trading and not for longer term. Time is not a friend to glove stocks now. The longer we go into the future, the closer we are approaching the end of pandemic, and more negative news for glove stocks.
    But, since short term trading is a tiring task, i may not want to do so and give the glove stocks a pass.. unless they drop a lot more from current level.

    Again, my opinion above is speculative and it is very likely that it turns out to be wrong.

    1. I do share similar view with you. But one thing we cannot deny is that gloves companies are very "hoseh" even after the pandemic. It's important how they make use of the cash, either M&A or diversification or whatever.

  2. How IB and Foreign Investment value the growth of glove? I believe the it is still intact and all the small mushrooming "glove" companies and recent one, AT ..the price in exponential climb (which sentiment still positive).... imho

  3. Perhaps can convince the investor how the "windfall" profit (increasing number) can be position well for future business x'pension, acquire, growth and diversification.

    1. AT is the new kid on the block and I think it can still climb, as hot cash from those 7 bigger gloves companies will surely flow into AT. Usually I'd have invested in such company with explosive growth in the very near future, but I'm a bit uneasy with its "popularity". I'll keep an eye on it first.

      For gloves industry as a whole, I can't predict their share price movement in the next 3 months. I hope that they can still climb to their previous highs.