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Home Smart Analysis 2 Stocks That Are Soaring Because of the COVID-19 Pandemic

2 Stocks That Are Soaring Because of the COVID-19 Pandemic

By now, investors should be aware of the devastating economic effects of COVID-19.

The pandemic is turning out to be more than just a health crisis, as many countries are forced to sacrifice their economies to stop the spread of the deadly virus.

Industries that rely on tourism and travel for survival have been badly hit.

And even as many countries are now easing their lockdowns and re-evaluating opening up their borders, it may take considerable time for economic recovery due to the uncertain nature of the pandemic.

Meanwhile, businesses continue to bleed.

Some, like Singapore Airlines Limited (SGX: C6L), may never be the same again.

On the flip side, this pandemic has also boosted certain businesses significantly.

Such businesses may have been cruising along fine all this time, but lacked a specific catalyst to enable the business to grow significantly.

COVID-19 has provided just the spark that’s needed.

Here are two stocks who share prices have been soaring because of the pandemic.

Medtecs International Corporation Ltd (SGX: 546)

Medtecs is a healthcare products and hospital services provider and also a manufacturer of reusable hospital apparel and disposable personal protective equipment (PPE).

The group has offices and facilities located in Singapore, Taiwan, the Philippines, China and Cambodia.

The stock price has been hovering between S$0.03 to S$0.06 over the last five years till early Jan 2020.

Year to date, however, the stock has soared ten-fold, from S$0.04 to its current S$0.42, giving the group a market capitalisation of S$228 million.

The group is also listed on the Taiwan Stock Exchange through Taiwan Depository Receipts since December 2002.

The onset of the pandemic has provided a tremendous boost to Medtec’s financial performance.

Back in the fiscal year 2019, the group recorded total revenue of US$69 million and net profit attributable to shareholders of US$1.2 million, up 1% and 27.6% year on year, respectively.

When Medtecs released its unaudited first quarter 2020 earnings, revenue had more than doubled from US$16.7 million to US$39.8 million, while net profit jumped 15-fold from US$227,000 to US$3.67 million.

With PPE being in high demand globally, the group has doubled its production of protective clothing and has seen strong demand from both existing and new customers.

Demand has been so strong that the group has even had to tackle a case of unscrupulous vendors who obtained its PPE illegally and sold them even though the coveralls have long passed their expiration date.

Assuming annualised full-year net profit of US$14.7 million (based on its first-quarter net profit), earnings per share would soar to S$0.0371.

At a share price of S$0.42, the forward price-earnings multiple stands at around 11.3 times.

Moving forward, it remains to be seen if such high demand can be sustained over the medium-term.

Top Glove Corporation Berhad (SGX: BVA)

Top Glove is the world’s largest manufacturer of rubber gloves. The group, headquartered in Malaysia, has over 2,000 customers worldwide and exports its products to more than 195 countries.

As of 11 June 2020, Top Glove owned a total of 45 factories in Malaysia (40), Thailand (4) and China (1).

The group’s glove production capacity stands at 78.7 billion pieces per annum currently.

Before the pandemic, Top Glove was already enjoying steady growth over the years as global glove demand was growing at a steady clip of 8% to 10% per annum.

From the fiscal year 2014 through to 2019 (the group has an August 31 fiscal year-end), revenue grew steadily from RM 2.3 billion to RM 4.8 billion.

Net profit doubled during this period from RM 183.6 million to RM 367.5 million.

For Top Glove’s third-quarter fiscal year 2020 earnings, it reported record quarterly revenue of RM 1.69 billion, while net profit soared more than five-fold from RM 74.7 million to RM 347.9 million.

Year to date, the group’s share price has also more than tripled from S$1.54 to the current S$5.43.

Strong demand for rubber gloves in the wake of the pandemic is expected to increase the growth rate of global glove demand to 12% to 15% per annum, in line with both increased usage and heightened awareness of hygiene procedures.

This trend has bumped up Top Glove’s monthly sales orders by around 180% and resulted in lead times jumping from 40 days to around 400 days.

Utilisation rates for their factories have increased from a pre-COVID level of 85% to above 95% during the quarter, and average selling prices have also seen upward revisions.

The group is poised to expand its capacity further, with seven new glove factories slated to be constructed over the next two years.

Once complete, annual glove production capacity is projected to expand to 106.6 billion pieces per annum.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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