KUALA LUMPUR (Aug 25): The run-up among glove counters may have peaked, said AmBank Research, which has downgraded its call on the sector to “neutral” from “overweight” in view that the share prices are fully valued.

In a research note this afternoon, AmBank Research opined that the elevated average selling prices (ASPs) enjoyed by glovemakers “will begin to taper off in 1Q21”.

The research house has Top Glove Corp Bhd, Kossan Rubber Industries Bhd and Hartalega Holdings Bhd under its coverage.

“Share prices of all of the glove companies under our coverage have exceeded their target prices,” it said.

“We believe that at current share price levels, the valuations for glove companies under our coverage have fully priced in the companies’ earnings outlook,” it said.

It added that “PE valuations are demanding” pointing out that Top Glove is currently trading at CY21F PE of 43.3 times, which is two standard deviations (SD) higher than its three-year average forward PE of 28.9 times, while Kossan Rubber’s CY21F PE of 26.0 times is almost 1SD higher than its three-year average forward PE of 23.7 times, and Hartalega is trading at a CY21F PE of 40.9 times, which is slightly higher than its three-year average PE of 39.5 times.

AmBank Research noted that the planned capacity increase of 126 billion pieces or 54% by end-2022 “will more than offset” demand increase, and that the recent strides in Covid-19 vaccines will affect ASPs as well.

AmBank downgraded Top Glove and Kossan to “hold” with unchanged fair values of RM25.70 and RM15.74 respectively, while maintaining a “hold” call on Hartalega with fair value of RM18.74. Currently, no glove stocks in Malaysia have any “sell” call by analysts covering the companies.

Edited by Joyce Goh