KUALA LUMPUR: There could be an increase in buying interest in glove counters amid the global spread of a more contagious variant of the Covid-19 virus, although the positive effects may be short-lived.

       According to Kenanga Research, the Delta variant of the disease has resulted in the resurgence of cases and reintroduced lockdowns in several countries.

       "The Delta variant would slow the fall in glove ASP, as glove urgency is buoyed by the rise in cases. The smaller rate of fall in ASP would help support earnings in the next 12 months," said Kenanga.

       Looking further afield, the research house maintains that post-pandemic demand projections remain overblown despite steady growth projections by Frost & Sullivan and MARGMA.

       It expects flattish to negative growth in glove demand in the first post-pandemic year as the expected fall in Covid-19 cases has been postponed rather than cancelled.

       "We maintain our view that lasting glove demand is not so much driven by a blanket 'paradigm shift' brought about by increased healthcare awareness.

       "Instead, it is driven by more organic sociopolitical and legal structural issues such as healthcare outreach, enforceability of glove mandates as well as medical malpractice laws.

       "These imply a slower and more gradual growth than current demand projections," said Kenanga.

       The research house expects average selling prices of gloves to stabilise at US$35-35 per 1,000 pieces before tapering on the back of improved vaccination rates and improved management of the pandemic by world governments.

       "We urge investors to look past supernormal profits brought about by the spike in cases due to the Delta variant.

       "The variant may result in gentler drops in quarterly earnings, but we doubt will affect post-pandemic glove demand in a significant way, even if the virus becomes endemic," it added.

       Kenanga adjusted the fair values of glove companies to incorporate the disruptions brought on by the EMCO and MCO, slower declines in ASP and a sharp drop in post-pandemic glove demand.

       The research house lowered its price-earnings ratios (PER) to factor in negative sentiment resulting from the factory closures.

       Accordingly, Kenanga maintained its "hold" call on Top Glove with a reduced fair value of RM3.66 a share based on PER of 14x 2022 forecast FD earnings per share (EPS).

       It retained "hold" on Hartalega with a lower fair value of RM6.87 a share based on PER of 15x FY23 forecast FD EPS, and "hold" on Kossan with a reduced fair value of RM2.96 a share based on PER of 15x FY23 forecast FD EPS.