Pfizer & Moderna Vaccine – What it means for the gloves?

On 9 November 2020, Pfizer Incorporation (NYSE: PFE) has released a press release on its experimental COVID-19 vaccine. In the press release, Pfizer has mentioned the experimental vaccine was more than 90% effective. The interim analysis has seen 94 infection cases recorded so far in a study that has enrolled nearly 44,000 people in the US and five other countries.

On top of Pfizer, Moderna Incorporation (NASDAQ: MRNA) also released positive news about its vaccine on 16th November 2020. Its experimental vaccine shows a high effective rate of 94.5% in preventing COVID-19 based on interim data from a late-stage trial.

With these positive news, the global equity market has rallied over the past few session as investors are betting a recovery in the economic condition. However, those counters that have benefited from the COVID-19 pandemic has suffered sell down such as Riverstone Holdings Limited (SGX: AP4), Top Glove Corporation Berhad (SGX: BVA), Sri Trang Agro (SGX: NC2) and UG Healthcare Corporation Limited (SGX: 8K7)

Markets are fearful that the supernormal profit will not last longer than expected as demand for medical products will fall once the COVID-19 pandemic is over. In this article, we will be looking at some of their recent key statistics to have a clearer picture of their current positions based on their closing as of 17 Nov.

Market Returns

In terms of their performance, UG Healthcare has achieved a 1-Year Return of 1310% while Top Glove clocks in a return of more than 367% in the similar timeframe. On the other hand, Riverstone's return increased by 185% and Sri Trang Agro gained 150% on a 1-Year period.

However, with the recent sell down due to the vaccine news, Riverstone has suffered the biggest losses with a negative return of 24.7% based on its 3-Months return. The next worst performer belongs to UG Healthcare, with a negative return of 19.6% over the same period.

Management Efficiency Ratio

Based on their management efficiency ratio, all companies have achieved exceptional results except for Sri Trang Agro as part of their business comprises of natural rubber segment, which has underperformed during the COVID-19 pandemic due to a decrease in the level of demand.

Top Glove’s Return on Equity (“ROE”) came in at 37.3%, which is the highest among the other 3 companies. Being a market leader in the glove industry, the surge in demand and selling prices of Gloves has allowed Top Glove to achieve a higher level of profits as compared to the other players, which might explain a higher ROE.

Despite being the smaller players in the industry, both Riverstone and UG Healthcare also saw a surge in their profit level and hence their ROE has got a boost to a high of 23.2% and 25.6% respectively.

Sri Trang Agro’s ROE is among the lowest of 12.3% due to the lacklustre performance in their natural rubber business. However, with the substantial rise in selling price of its glove's product recently, we can expect this to boost Sri Trang Agro's bottom line in the next few quarters, and potentially translate to a higher ROE.

Leverage Ratio

As a result of the supernormal profit level, the leverage level for the 4 companies is relatively low. In fact, both Riverstone and Top Glove are in a net cash position as a result of a surge in the average selling price in gloves, which brings in a huge amount of cash for their balance sheet.

Sri Trang Agro’s current net debt to equity ratio stands at a low of 0.15 times, significantly lower than FY2019’s figure of 1.09 times as a result of the IPO proceeds received from the listing of its glove segment. Meanwhile, UG Healthcare has managed to reduce its ratio to 0.50 times from FY2019’s figure of 0.78 times as a result of a higher selling price of Gloves.

Liquidity Ratio

Generally, all 4 companies have a strong current ratio of more than 1 time, which shows that their current assets on hand are able to cover more than its current liabilities in their balance sheet. Therefore, there is a low possibility of insolvency in the near term for these companies.

On the other hand, Riverstone has the highest cash ratio of 1.96 times among the other 3 companies. This goes to show that Riverstone has ample cash on hand to expand its capacity and handle its debt obligations. Sri Trang Agro came in 2nd with a cash ratio of 0.87 times as the company generated a huge amount of cash from the recent IPO of its glove segment.

Conclusion

Given the positive news on a possible successful vaccine, the market seems to be pricing in the end of supernormal profit level achieved for each of these individual company. Therefore, this might explain the shift in funds from these COVID-19 beneficiaries into those counters that could benefit in a post COVID world.

However, in the short run, earnings visibilities are still going to be positive for these glove counters as their order books remain strong for the next few years and the average selling price of gloves remains at an elevated level.