Trading With A View

Author: tradeview   |   Latest post: Thu, 21 Jan 2021, 3:25 PM


Tradeview Commentaries - Unwavering Confidence In Glove Makers In Spite of Vaccine Newsflow

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The market sentiment over the week was a mixture of anxiety and joy. Joy for those who believed in value stocks and blue chips, whereby it surged tremendously. Anxiety however, are for investors of glove, PPE and related stocks which reacted adversely due to the news of Pfizer vaccine. 

On a positive note, following US elections and Pfizer vaccine news, foreign funds have been flowing back to Malaysia for 3 consecutive days and even exceeded 20% overall market participation level. 

In the coming weeks, there will be more vaccine news. It will likely be Moderna and Astra Zeneca to follow. Potentially, China vaccines will also come through with their phase 3 safety data. 

In this case, it will bode well for Value stocks (Banks, select blue chips) and Legitimate Vaccine related companies 

How about glove, is it all over?

Through the year, I have done many site visits personally and met with management of key industry players, even spoke with established distributors. Whatever I have shared are not information pluck from the sky based on airy fairy hopes but on objective facts. I will update all my latest view post-Pfizer announcement. 

1. Earnings visibility for gloves are still at least 12 month / 1 full year through 2021. (This is not a disputed fact even by the most bearish analyst for the sector. )

2. Vaccine or no vaccine, ASP and demand won't fall off the cliff. (Again not disputed fact even by the most bearish analyst)

3. Mass vaccination will take time, and implementation for the world even longer. At the very least 1 year. (This is a fact stated by WHO & Dr. Fauci.)

4. Glove strong demand due to severe shortage will last through to 2022. New hygiene practice and structural step up, increased healthcare budget for governments around the world and stockpiling requirements contributes to this. (This is a fact)

5. Potential future oversupply concern. (Two camps arguing with 1 side arguing due to new entrants there will be oversupply but I don't believe this as new entrants can't compete with established players due to certification, safety standards, economies of scale and technical know how)

6. Eventual decline in mid 2022/2023 for ASP and demand (strongest argument for glove bears. My view - I can't tell what happens in 18 / 24 months. No one can. As the time progresses, more visibility comes through. But I believe ASP will plateau later than sooner, definitely not this year) 

7. Glove stocks are overvalued. These are noises by naysayers and bears. No matter which method I adopted, PER multiples against past year Standard Deviation, DCF or the most accurate EV/EBITDA (EV ratio), dividend yield forecast, gloves stocks are undervalued and a mile from being overvalued. This is a fact. If analysts are objective and fair in their assessment for all companies in Bursa using the same stringent assessment scrutinising glove stocks, there will be absolutely no companies that we can buy or invest anymore. Tech stocks are by far grossly overvalued, recovery stocks like airlines / tourism are taking into account future earnings which does not exist, local vaccine related stocks with MOU has no proof of ability to deliver as the best vaccines are taken up.

In a nutshell, I think some investors and select funds are overly conservative in valuing glove stocks. They are worried being caught as the last one holding the stocks choosing to forego 1 full years of record Profits and potential bumper dividend.

Use this opportunity to buy on weakness. When value emerges ignore the noises. I think Riverstone, Hartalega, Top Glove, Supermax, Sri Trang, Kossan are good fundamental companies worth a place in your portfolio regardless of the "overnight vaccine experts" who think otherwise. 


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  hhswong likes this.
Black Swan Antifragile Since last week, we have witnessed massive rotation into value stocks. funds rebalanced their portfolio from stay at home stocks into stocks that linked to economic recovery, the airlines, banks, etc.

Treasury yields have rallied to multi-month highs. the 10YR is approaching 1%.

While positive vaccine news a boost to sentiment, clearly we are in a mini upcycle, I am more wary on the workings of mean reversion.

The path to recovery is much clearer since the onset of the pandemic, the pace is still very much dependent on the successful containment and commercialization of vaccine.

Short term fluctuations aside, I still believe glove stocks a must have in your portfolio, especially so given its prevailing valuations. Post-covid, glove demand is expected to expand at least 20-25% from the usual 8-10% annual growth rate.

Of course, diversification is one free lunch available. When the global economy does recover next year, consumption to eventually normalise, my portfolio of energy stocks would benefit from the rebound in oil price.
16/11/2020 8:14 PM
CCCL Gloves stocks aka No-Brainer stocks. Any Ah Kau or Ah Mau can trade now. So any sensitive news, they run helter-skelter...
16/11/2020 9:30 PM
cngi fund direction now is towards covid recovery related stock. Glove undoubtedly is good stock to hold, but short term not to against the flow of fund..
16/11/2020 9:42 PM
CCCL Don’t falls into a die-hard fan syndrome..narrowing your investment horizon.
16/11/2020 9:52 PM

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