KUALA LUMPUR (Oct 7): Glove makers have paused on share buy-backs despite stock prices nearing their lowest in a year.

As at the noon break on Thursday, Top Glove Corp Bhd's share price has fallen to RM2.75 from its 12-month peak of RM9.60 in October 2020, Hartalega Holdings Bhd's to RM5.96 from RM19.04, Supermax Corp Bhd's to RM2.29 from RM10.70 and Kossan Rubber Industries Bhd's to RM2.28 from RM8.13 in the same period.

Top Glove's last share buy-back filing with Bursa Malaysia on Feb 22 showed it bought another 10.11 million shares for RM58.86 million at minimum and maximum prices of RM5.78 and RM5.87 a share respectively. Following the purchase of the 10.11 million shares, Top Glove's cumulative number of net outstanding treasury shares stood at 202.15 million while its adjusted number of issued shares stood at 8.2 billion.

Hartalega's latest share buy-back was the purchase of 350,000 shares for RM2.9 million on June 17 for a cumulative number of net outstanding treasury shares of 10.15 million, while Supermax last performed a share buy-back on Jan 22, acquiring 8.15 million shares for RM53.9 million with Kossan having last bought 500,000 shares for RM1.59 million on March 31.

In an Oct 7 note, TA Securities analyst Tan Kong Jin said that the average selling price (ASP) of nitrile gloves declined to US$40 to US$45 per 1,000 gloves in September compared with US$45 to US$50 per 1,000 gloves in August. Similarly, latex gloves' ASP dropped to US$30 to US$35 per 1,000 gloves in September versus US$35 to US$40 per 1,000 gloves in August.

"Going into October, we expect the nitrile and latex gloves' ASPs to be at US$35 to US$40 per 1,000 and US$25 to US$30 per 1,000 gloves respectively, representing about 8% to 12% month-on-month decline.

"Thereafter, we expect the nitrile glove ASP to drop at a slower pace once it touches the US$30 per 1,000 mark. At this level, we believe those major customers, who have been waiting for glove prices to stabilise, would gradually return to the market. Based on the current ASP trend, the ASP normalisation is expected to happen in 1Q22 or early 2Q22, which we believe would be higher than the pre-pandemic levels due to higher cost of production, emanating from additional cost for SOP compliance and higher nitrile raw material price," Tan said.

Tan noted a slowdown in expansion plans as glove manufacturers faced lower lead time and delays in plant construction due to Covid-19 restrictions amid the drop in ASP.

He pointed out that Top Glove has revised its CY21 end capacity lower to 100 billion from 111 billion previously, CY22's to 111 billion from 138 billion and CY23's to 137 billion from 175 billion previously, while the progress of Supermax's plans to build a glove manufacturing plant in the US is slower than expected.

"In addition, the first line (Plant 8) of Hartalega NGC 1.5 is expected to commence only in 1Q22 compared with the previous target of 4Q21 while maiden contribution from Kossan's Bidor Plant in Perak is expected to be in 2023 instead of the initial 2022 target," he said.

On the upcoming Budget 2022 announcement, Tan said he does not expect the government to impose windfall tax as the Ministry of Finance said that the sector had already contributed positively to the national economy in terms of tax revenue and job opportunities.

"Note that the big four glove manufactures contributed about RM1.6 billion in taxes in 2020, while the industry is estimated to have paid about RM2.6 billion in corporate tax.

"We believe that the glove manufacturers can better use their additional profits to reinvest and upgrade their environment, social and corporate governance standards in the coming years, which may be a strong selling point for Malaysian glove manufacturers.

"This would help Malaysian glove manufacturers remain competitive and increase the government export revenue in the long run. That said, we do not discount the possibility of another donation to the government, similar to Budget 2020, in which the big four glove makers contributed RM400 million to the Covid-19 fund," Tan said.

To account for the faster-than-expected drop in ASP and slowdown in expansion plans, TA Securities has reduced Hartalega's FY22, FY23 and FY24 earning forecasts by 0%, 44.6%, and 22.7%, and Supermax's by 35.3%, 53.7% and 2.1%, respectively.

The research house has also reduced Kossan's FY21, FY22 and FY23 earnings forecasts by 5.2%, 34.7% and 44.8% but made no changes to Top Glove's earnings assumptions.

Tan, who has a "neutral" stance on the sector, maintains his "buy" calls on Hartalega and Kossan with lower target prices (TPs) of RM7.11 from RM10.30 previously, and RM2.71 from RM3.92.

He has maintained "sell" calls on Supermax with a lower TP of RM1.80 from RM2.71 previously and Top Glove with an unchanged TP of RM2.60.