Of Mah Sing ‘walking out’ of its glove venture with Top Glove eyeing biz

AMID the hype and fanfare of its pursuit of rubber glove business at the height of the COVID-19 pandemic in mid-2020, there is rife speculation that Mah Sing Group Bhd has sprung a surprise with plan to hive off its rubber glove business and that Top Glove Corp Bhd has emerged as a potential buyer.

In PublicInvest Research’s view, such potential acquisition is consistent with Top Glove’s long-term expansion strategy to achieve an annual production capacity of 201 billion glove pieces by December 2025.

In order to build a similar capacity as that of Mah Sing Healthcare Sdn Bhd, the research house expects Top Glove to fork out circa RM175 mil in capex (capital expenditure).

“There was no indicative price mentioned in the article but in our view, a price tag of equal or less than RM175 mil will be value accretive to Top Glove,” suggested PublicInvest Research in a company update of Top Glove.

“Given that current short-term headwinds faced by the industry, we feel there is little urgency to acquire capacity unless valuation is attractive and undemanding though we note that the proximity of Mah Sing Healthcare is strategic to Top Glove’s existing facility.”

“This should help to save on transportation and logistical cost. Based on our estimates, the additional 3.68 billion capacity could contribute circa RM21 mill to Top Glove’s bottom line or circa 3% of FY8/2023F net profit, assuming normalised ASP (average selling price), utilisation rate and profit margin.”

Recall that Mah Sing ventured into glove manufacturing business under the Mah Sing Healthcare banner in mid-2020. For the first phase, the glove manufacturing business commissioned 12 production lines in May 2021 with an annual production capacity of 3.68 billion/pieces.

The second phase is expected to double the annual production capacity to 7.4 billion pieces. The manufacturing factory is located in Kapar with a built up of about 228,000 sq ft which is located close to Top Glove Factory 31 (about 400 meters apart).

Mah Sing Healthcare has also successfully obtained the relevant certification from the governing bodies in major glove-importing countries and regions. This includes but not limited to 510K from the US Food and Drug Administration (FDA).

All-in-all, PublicInvest Research said it made no adjustment to its earnings forecast of Top Glove at this juncture by reiterating its “neutral” call with an unchanged target price of RM1.48.

“Despite the short-term headwind, the long-term outlook remains positive as glove consumption in the emerging markets is expected to increase notably, supported by the low per capita consumption, amid heightened hygiene awareness,” added the research house.

At 9.35am, Top Glove was up 2 sen or 1.28% to RM1.58 with 2.11 million shares traded, thus valuing the company at RM12.97 bil. – May 17, 2022

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