APART from the intermittent short-lived uptrend emanating from concerns over likelihood of Beijing imposing lockdowns in tandem with China’s stringent zero-COVID policy, there is hardly any compelling reason to invest in glove stocks these days.
Even if there is another severe COVID-19 wave sparked by inability of health authorities the world over to combat notorious strains and sub-variants tomorrow (touch wood), the prospect of another glove stock mega rally similar to that of 2H 2020 will unlikely recur.
Not only have vaccines been rolled out in abundance at global level, but price-killing competition has spiralled along with the mushrooming of new players that jumped onto the bandwagon for a tiny slice of the seemingly lucrative profit – only to regret ever making such plunge.
Closer to reality is that the race to endemicity is gaining pace across both the developed and developing economies with the notion of ‘co-existing’ with COVID-19 increasingly becoming the norm.
Even as awareness has risen multi-folds on the importance of personal protective equipment (PPE) like gloves – and even masks to a large extent – their average selling prices (ASPs) have swiftly been declining to pre-pandemic levels by virtue of supply-exceeding-demand and inevitable price-cutting practices.
A good example will be property developer Mah Sing Group Bhd, who would have easily forked out RM150 mil for its 12 glove manufacturing production lines commissioned in May 2021, which has the capacity of producing 38,000 gloves a line an hour or 3.68 billion gloves a year.
Now Mah Sing is said to be in negotiation with Top Glove Corp Bhd – the world’s largest glove maker – to “hive off” its glove manufacturing business, in which the former claimed to be merely 3% of the group’s total assets and aims to strengthen the group’s non-core manufacturing segment.
This stark reality comes at a time when Top Glove’s head honcho Tan Sri Lim Wee Chai has acknowledged that an oversupply in the rubber glove industry will continue to exert downward pressure on the group’s gloves ASPs.
“ASPs (for gloves) could drop below the pre-pandemic period in 2019 because the supply is still more than demand,” he warned at a briefing in conjunction with Top Glove’s release of its 3Q FY8/2022 results.
“The supply (of gloves) has to be reduced so that the ASPs will recover … especially nitrile gloves for which the ASP has been dropping a lot and now it is almost at the bottom which is about the same or slightly lower than the ASP in the year 2019 before the pandemic.”
More broadly, yesterday’s (July 13) article by Bloomberg befittingly titled “Once-Unstoppable Glove King Loses Billions after 89% Stock Crash” truly epitomises how the newfound wealth of Lim – who is also Top Glove’s founder and executive chairman – has ‘evaporated’ following a 99% plunge in the glove maker’s 3Q FY8/2022 net earnings.
“But as the chairman of the biggest maker of rubber gloves, the erosion of Lim’s fortune is shaping up to be as dramatic as its rise. And unlike US or European tech founders and crypto traders, Top Glove’s rapid fall could deal a blow to Malaysia which produces 65% of the world’s supply of gloves,” wrote Yoojung Lee.
“While the nation’s shipments of rubber items surged 50% to almost US$14 bil last year, Chinese competitors have been ramping up production, making the reversal even more severe.”
Interestingly, while Lim’s fortune has been eroded at business level, Lim, who owns 36% of Top Glove with his family, has been the main beneficiary of the company’s dividend policy, especially with last year’s record pay-out.
“Even though shares are down 89% from their peak, he received a windfall of more than US$400 mil (circa RM1.8 bil) for 2021 and US$75 mil (circa RM333 mil) in 2020 as profit grew more than 300% each year,” revealed Lee. “That compares with US$26 mil (circa RM115 mil) in 2019 (before the pandemic).”
At 3.05pm, Top Glove was up 1 sen to or 0.99% to RM1.02 with 17.72 million shares traded which valued the glove maker at RM8.37 bil. – July 14, 2022
