Glove counters on SGX see selloff after bullish run

THE shares of glove makers on the Singapore bourse saw sharp selloffs this week, after a bullish run over the past six months thanks to a boost in demand for gloves amid the Covid-19 pandemic.

On Wednesday, the US Customs issued a detention order on imports made by the world's largest glove manufacturer, Top Glove, which is dual-listed in Singapore and Malaysia, possibly over forced labour concerns.

Earlier this week, the trio of rubber glove plays - Top Glove, UG Healthcare and Riverstone Holdings - all registered price falls, albeit to varying degrees.

UG Healthcare is on track for a weekly loss, having tumbled 33 per cent so far this week, while Riverstone has fallen 8 per cent from July 13 to 16, Shareinvestor data shows. They were up 48.1 per cent and 17.7 per cent respectively last week from July 6 to 9. Meanwhile, Top Glove registered a weekly loss of 5.7 per cent as at Thursday, after advancing 14.7 per cent last week.

The counters are up Friday morning, amid broad market gains. As at 10.30am, Top Glove surged 76 cents to S$7.25, UG Healthcare added 13 cents to S$1.45, and Riverstone was up 16 cents to S$3.16.

One analyst The Business Times (BT) spoke to on Thursday noted a "very fierce trading pattern" among the glove counters. "A lot of optimism was priced in, prices ran up well ahead of valuations and subsequently corrected down," the analyst said.

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Top Glove lift a trading halt on Thursday it called for earlier in the day, following a clarification regarding the US Customs and Border Protection (CBP) order.

In a regulatory filing on Thursday afternoon, Top Glove disclosed that the CBP has placed a detention order on disposable gloves manufactured by two of the company's subsidiaries - Top Glove Sdn Bhd and TG Medical Sdn Bhd. Such a move is intended to stop imports from companies suspected of using forced labour, Reuters reported on Thursday.

Top Glove said it is reaching out to the CBP through its office in the US, as well as customers and consultants to better understand the situation and work towards a "speedy resolution" within an estimated two weeks. "There is a possibility this may be related to foreign labour issues which we have already resolved, save for one more issue with regard to retrospective payment of recruitment fees by our workers to agents prior to January 2019, without our knowledge," Top Glove said.

The company added that it has been bearing all recruitment fees since January last year when its zero recruitment fee policy was implemented. "Over the past few months we have been working on this issue which involves extensive tracing, to establish the correct amount to be paid back to our workers, on behalf of the previous agents." Top Glove now estimates this amount to be about RM20 million (S$6.5 million) to RM50 million.

Over the past six months, UG Healthcare has gained almost 800 per cent, Top Glove has risen some 366 per cent, and Riverstone has climbed over 220 per cent, according to Bloomberg data.

The analyst BT spoke to highlighted that some brokerages had imposed trading restrictions on some of these stocks in recent days, after a sharp run-up in prices. Asked about possible reasons for the recent share price movements, he noted that the price falls come as market euphoria slows down.

He added that algorithmic trading could be a contributing factor, though "there is no way to attribute to it convincingly". "There are various algorithmic traders in the market currently based on market feedback. They tend to trade the liquid stocks actively, and can add to the price swings," the analyst said.

Looking ahead, he noted that the shares of these glove plays should see more rational trading, with prices stabilising and finding some support.

In a research note on Wednesday, DBS analyst Ling Lee Keng raised the target price on Riverstone to S$3.90, up from S$3.09 previously, citing rising glove prices and fatter margins.

Separately, BT on Wednesday reported that the recent spike in gloves demand might mask woes in the wider rubber industry.

Across the causeway, seven glove stocks on Bursa Malaysia had displayed a uniform V-shape pattern on Tuesday, with the counters plummeting shortly after 4pm, before rebounding before the closing bell, The Edge reported. The sudden plunge among the stocks during the final trading hours was in the range of 15 per cent to 25 per cent, sparking intrigue among market observers.