Glove stock valuations hit rock bottom after US$6 bil rout

A rout in Malaysian glove makers is deepening, sending valuations for some companies to rock-bottom levels.

Top Glove Corp., the world’s biggest, slid 7.8% in a fifth day of declines Wednesday, taking its February loss to 22%, set to be the worst for any month on record. The stock is trading at about 6 times 12-month forward earnings, from a record high of 43 times in May. Supermax Corp., which surged 784% last year, is down 26% this month and trades at 4.6 times.

More than US$6 billion ($7.92 billion) in market value has evaporated in February alone for Malaysia’s top four glove makers as global vaccine rollouts accelerate and short sellers swarm these pandemic winners. Malaysia is starting its own Covid-19 vaccination campaign Wednesday, further dampening sentiment.

“There is a narrative around ‘re-opening’ which has definitely impacted sentiment,” said Ross Cameron, a Tokyo-based fund manager of Northcape Capital Ltd., who has been investing in glove makers for more than a decade. “But the fundamentals for the glove sector remain strong and valuations are as cheap as we have seen for a decade.”

The slump is a far cry from months ago when glove stocks became one of Asia’s hottest trades at the height of the global pandemic and helped spur a comeback by amateur investors. That helped catapult volumes in Malaysia’s stock market to record highs last year.

Hartalega Holdings Bhd. is trading below 10 times estimated earnings, down from 60 in June, while Kossan Rubber Industries Bhd.’s multiple has dipped to 4.1 times, according to data compiled by Bloomberg.

Despite the slump in these glove stocks, Cameron says their prospects remain strong and “valuations simply do not reflect this reality.”

Stocks like Top Glove “offer some of the highest sustainable dividend yields in the world,” he said. “The glove sector was an attractive sector for many years prior to the pandemic, and it will likely be even more attractive in the post-pandemic era.”