Thursday, August 12, 2010

Trying time for the rubber glove industry

(The Star) CAN it be that the stock market’s love affair with rubber glove manufacturers is on the rocks amid signs that there will be no repeat of the industry boom like last year?

In addition to the slower demand growth in the rubber glove industry, analysts expect additional headwinds in the form of the weak US dollar and higher latex costs.

The share prices of the major glove makers has dropped significantly recently. Top Glove Bhd closed at RM6.20 yesterday, 14.4% lower than its highest on July 15 this year; Supermax Corp Bhd dropped from its highest of RM6.55 on July 19 to RM5.99, Kossan Rubber Industries Bhd was down 45 sen, compared to its highest of RM4.25 this year while Hartalega Holdings Bhd slipped 61 sen to RM7.84, from its highest of RM8.45 this year.

The demand of rubber gloves rose tremendously last year with a growth of about 18% due to the flu outbreak that pushed up the demand in healthcare industry, compared to its normal 10% growth previously.

The companies share prices grew hugely from last year to July supported by growing demand and the bright outlook of the healthcare industry.

Compared to its share prices on last trading day of last year with its highest point this year, Top Glove has grown 44.7%, Supermax grew 74.5%, Kossan jumped 56.5% while Hartalega has rose 35.9%.

However, analysts said the “good scene” for glove makers has come to an end as the flu outbreak is under controlled now, which caused a lower demand.


Stocks, for most of the time, are moving in a group. There will be a leader and followers. The sector can be hated for a long time when a group of institutional or major shareholders decided to exit. If sellers are exhausted themselves, perceived price is cheap enough there will be buyers out there. Some of these buyers may accumulate enough and begin to put a positive spin on it. If the leader manage to lead again, soon the shareholders in follower group will quit selling hoping they can fetch a higher price later.

(click on images to see details)

You may see the first chart shows that Top Glove is the leader. The clear pattern is they topped and bottomed out first. The most hated stock will be the last to bottom out. The leader Top Glove is rolling over recently. No matter how cheap the rest of the stocks, my suspicion is, followers will tumble soon.

Since today is Friday, I will lighten up things a little bit. The whole commentary can be best summarized by Lao Fu Zhi.

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