Share valuations of the four biggest medical glove makers in Malaysia – in the world, in fact – have soared to historic highs, but not because of the MERS outbreak.
The median forward 12-month price-to-earnings ratio of Top Glove, Supermax, Kossan Rubber Industries and Hartalega has risen to 18, the highest ever, according to Thomson Reuters data. The figures also show their combined revenue is expected to grow 20 percent in 2015, the most in five years.
The chief driver of sales is the ringgit’s slump to nine-year lows against the dollar, making exports more competitive. Low raw material prices will also help widen profit margins. Analysts advocate a selective stock-picking strategy. Among the four, they see Top Glove as their top pick. Shares of the world’s biggest glove maker, which commands a 25 percent share of the market, have jumped some 11 percent in Kuala Lumpur since the company released earnings on June 17 that beat expectations.
“I think given the strong rally in Kossan prices, value has emerged more in players such as Top Glove and Supermax,” said Chris Eng, head of research at Etiqa Insurance & Takaful, which manages more than 23 billion ringgit ($6.12 billion) of assets. “Probably Top Glove presents the most value as we expect oil prices to gradually rise in coming months putting upward pressure on nitrile as well, which will disadvantage Hartalega and Kossan.”
The recent outbreak of Middle East Respiratory Syndrome (MERS) in South Korea has also helped spark investor interest in the stocks, though analysts do not expect MERS to translate into a jump in glove demand with a material impact on earnings. Malaysia-based RHB Research attributed this to the success of South Korea in containing MERS. South Korea has reported a total of 180 MERS infections as of Thursday morning, with 29 deaths. In contrast, Severe Acute Respiratory Syndrome (SARS) in 2003 infected 8,096 people and killed 774, and driving up demand for medical gloves. As for Ebola, which has killed more than 11,000 people in West Africa in the past year, cases have declined sharply in recent months. ($1 = 3.7580 ringgit)