KUALA LUMPUR (Oct 19): Top Glove Corp Bhd and Hartalega Holdings Bhd are at risk of being excluded from the list of 30 component stocks of the FBM KLCI in the upcoming review, according to Citi Research.

On Wednesday (Oct 19), both Top Glove’s and Hartalega’s market cap rankings were below the top 30 stocks, with Top Glove ranking 48th and Hartalega at 43rd place.

If this trend does not change heading into the year-end, Top Glove and Hartalega will be booted out from the 30 component stocks of the KLCI list.

Based on FTSE Russell’s rules, a stock would be removed from the KLCI if its market cap ranking drops to 36th place or lower, while one will make it to the list if its ranking rises to 25th or above.

Hartalega was added as part of the 30 component stocks of the KLCI in June 2018, while Top Glove followed suit six months later in December 2018.

Top Glove, the most actively traded stock of the day, which saw 73.01 million shares transacted, lost 1.5 sen or 2.03% to settle at 72.5 sen, valuing it at RM5.81 billion.

Despite the stock having gained nine sen or 14.17% over the past week (from Oct 12),  it has fallen 72.01% year-to-date (YTD), from RM2.59 at the end of December last year.  

Similarly, Hartalega’s shares also took a nosedive YTD, as it has plunged 67.89% to RM1.84, from RM5.39 on Dec 31, 2021. The stock has risen 11 sen or 6.36% over the past week. On Wednesday, it fell eight sen or 4.17% to RM1.84. At RM1.84, it is valued at RM6.29 billion.

Both Supermax Corp Bhd and Kossan Rubber Industries Bhd also posted gains over the past week, where Supermax rose 19.01% and Kossan saw modest gains of 2.63%.

YTD, Supermax has lost 42.52% to 84.5 sen, from RM1.47 on Dec 31, 2021. It currently has a market capitalisation of RM2.30 billion.

Meanwhile, Kossan has shrunk 40.63% to RM1.14, from RM1.92 during the same period. At RM1.14, Kossan has a market capitalisation of RM2.92 billion.

Despite the glove sector regaining some of its lost ground over the past week, Citi Research analyst Megat Fais said recent conversations with industry players suggest that the challenging operating landscape remains unchanged.

“The spread of the new and sub-variants [of Covid-19] could lead to a surge in new cases, but a corresponding spike in demand is far from guarantee,” said Megat, adding that with current utilisation at 40% to 50%, demand for gloves has to pick up substantially before the pricing leverage returns to manufacturers.

While the weakness in the ringgit will provide some margin buffer, albeit still outweighed by challenges in pricing, low utilisation and rising costs with risks of KLCI/MSCI exclusion remain for Top Glove and Hartalega.

Against this challenging backdrop, Megat said he remains cautious about the glove sector, despite share prices being well below pre-Covid-19 levels.

“The growing uncertainty on profitability and negative earnings momentum will cap any buying interest,” he observed.