Craze for glove makers spills over to small-cap stocks linked to healthcare

The market’s craze for glove counters amid the coronavirus pandemic, which has sent the main players’ share price soaring, has spilled over to smaller-cap glove production auxiliary players, medical equipment distributors, ventilators producers and face-mask material producers.

On Monday, both shares and warrants of HLT Global Bhd closed at their upper limit threshold prices of 88.5 sen and 65.5 sen respectively, after gaining 51% and 84%. Other healthcare stocks seen hitting their limit-ups on the same day include LKL International (which settled at 85 sen, up 53% or 29 sen) and Oceancash Pacific Bhd (up 40% or 29 sen to RM1.01).

HLT Global is a glove production line auxiliary service provider, while LKL International is involved in the manufacturing of hospital beds and equipment. Oceancash manufactures non-woven fabric that is used in disposable hygienic products like face masks.

The three stocks, together with BCM Alliance Bhd — a medical device distributor whose shares rose 57% or 13 sen to settle at 35.5 sen — all closed at record high prices.

Meanwhile, the issuance of licences by NASA Jet Propulsion Laboratory (NASA JPL) to manufacture a low-cost medical ventilator it developed for use by Covid-19 patients, has stirred strong interests among companies that have the capability to produce such ventilators, like K-One Technology Bhd.

K-One’s shares surged 39% or 12.5 sen to close at 44.5 sen on Monday, after over half a billion shares were traded, while its warrants more than doubled to 29.5 sen. On market close, the company confirmed it had been awarded a licence by NASA JPL, a research and development centre managed for NASA (National Aeronautics & Space Administration) by the California Institute of Technology, to make and distribute the ventilator. In a statement, K-One said it is the only company in Malaysia and the larger ASEAN and East Asian region — so far — licensed to manufacture and distribute the ventilator.

Speculation about who will get the manufacturing licence has likewise driven up counters like Nexgram Holdings Bhd (up 66% to 2.5 sen), Sanichi Technology Bhd (up 9.5% to 11.5 sen) and AT Systematization Bhd (up 25% to 7.5 sen), which all saw their trading volumes surge above the 120 million mark on Monday.

Other small-cap, healthcare-linked stocks that were heavily traded included ES Ceramics Technology (up 50% to 70 sen) and LYC Healthcare (up 20% to 53.5 sen).

The aggregate trading volume for the 13 counters mentioned above hit 2.89 billion in just this one day, and accounted for about 28% of the total turnover of 10.3 billion shares on Bursa Malaysia for the day.

Head of research at Rakuten Trade Kenny Yee told theedgemarkets.com that the strong trading enthusiasm was a classic example of a rotational play supported by liquidity injection introduced by the central bank, as investors hunt for opportunities among laggard counters.

“The market movers are more due to high net worth investors and retail participants, as they dabble into the equity market to seek better returns as compared to the lower deposit rates in the market,” Yee said.

However, he said the risk-reward ratio is unfavourably high in the current investing climate, and cautioned investors to weigh their risk-reward preference carefully, before jumping onto the bandwagon.

Meanwhile, head of research at EquitiesTracker Holdings Bhd Lim Tze Cheng said investors should consider the fundamental question of whether these healthcare related companies —most with elevated valuations — can justify their valuations with sustainable earnings growth over a longer time-frame, before jumping into action.

Lim, who described himself as “not too optimistic on the ‘new normal’ healthcare demand story”, thinks some of these medical equipment and consumable products counters will be subject to a mean reversion, once the pandemic is under control.

He also said most medical ventilators producers face stiff competition from big automakers equipped with comprehensive machinery that have ventured into the business, as well as China-based manufacturers that went into the game much earlier.

“The newest medical observations suggest that some Covid-19 patients — usually characterised by low blood oxygen levels — have shown no signs of having breathing difficulties. This has led some doctors to not put every single patient on the ventilator immediately. This might suggest some curtailing of demand, going forward,” Lim added.

Source: The Edge Markets