MAH Sing plans to venture into a new glove business for the long term by next year, allocating RM150 mil for 12 new production lines.
While the group can still leverage on its existing businesses, Mah Sing targets to grow the business with 100 production lines to produce 30 billion pieces of gloves and join the big leagues as one of the country’s leading glove manufacturers.
“We are positive on management’s diversification effort into the glove business as the new business should add resilience to the cyclical earnings from the property development,” RHB Research analyst Loong Kok Wen said in a note today.
To facilitate the new business, Mah Sing has rented a 313,548 sq ft plot of land and a single-storey warehouse in Klang, which will be converted into a glove factory.
Despite the first phase of its glove production was announced to commence in the second quarter of 2021, management guided that the indicative orders it received thus far have exceeded its planned capacity.
The first phase will involve 12 new production lines with an investment of RM150 mil.
“The investment size of RM150 mil is not overly taxing in our view. Mah Sing is currently in a net cash position,” Loong said.
Due to the new business venture, RHB Research to maintained its “buy” call with on Mah Sing a new target price of RM1.28 from 91 sen previously, a 75% upside and c.3% yield.
While MIDF Research also followed suit by maintaining a “buy” call, it revised Mah Sing’s target price slightly lower at RM1.10.
“We view the diversification into gloves manufacturing positively as it will provide an additional earnings stream to Mah Sing, allowing it to ride on the rising demand for gloves,” MIDF said in a note today.
“We are raising our FY2021 earnings forecast by 152% to RM266.5 mil after inputting earnings contribution from gloves manufacturing,” it added.
However, Maybank Investment Bank Research (Maybank IB) is not that convinced with Mah Sing’s business diversification as it puts a hold call on the manufacturing group.
“While we applaud Mah Sing’s plans, we are cautious on the increasingly crowded healthcare space and the sustainability of gloves demand and pricing post-COVID-19 vaccines,” Maybank IB said.
With that in mind, the research house is maintaining its earnings forecast with a target price of 76 sen.
“Our gloves analyst expects pricing to drop in 2023,” it added.
As of 12.25pm today, Mah Sing Group Bhd’s share price shot up 26.90% to 92 sen, with a market capitalisation of RM2.23 bil. – Oct 16, 2020