By Devanesan Evanson
IN The Good, the Bad and the Ugly, a 1966 Italian Spaghetti Western film directed by Sergio Leone, Clint Eastwood who plays the role of Blondie (The Good) teamed up with Angel Eyes (The Bad, played by Lee Van Cleef) to hunt down Tuco (The Ugly, played by Eli Wallach).
Ever since the outbreak of COVID-19 pandemic, there has been a spate of PLCs joining the gloves bandwagon.
Now, we have abundant wannabe glove-play counters to choose from, and among them, there are bound to be the good, the bad and the ugly. It takes skill and knowledge to search for the coveted “Good” and try and give a pass on the “Bad” and “Ugly”.
The latest PLC which jumped onto the glove bandwagon is circuit board maker PNE PCB Bhd.
On Jan 7, the company announced that it plans to set up five glove production lines with each yielding approximately 300 million pieces per year.
The glove production will start in stages by the fourth quarter of 2021. The new business is expected to contribute 25% or more to its future earnings.
Other Main and ACE-Market listed PLCs that have joined the glove bandwagon are:
As shown on the table, all the new glove players experienced a sharp run-up in their share prices after their announcements of new venture.
Subsequently, most of their share prices normalised to current level. The reason behind this phenomena is definitely food for thought for investors.
There are many factors we must look at before deciding in which wannabe glove counter to invest in. Some of the factors that should be considered are:
- The business segment and gestation period: Some of the PLCs above are involved in glove manufacturing and some of them are in the glove distribution and supply business.
Moreover, within the glove manufacturing segment, different products fetch different profit margins. As such, investors need to take note of the products that they are involved in.
Generally, public listed companies (PLCs) may acquire existing plant and machinery/business or set up their own production plants to kickstart their glove manufacturing venture.
If PLCs intend to embark on the journey on their own, investors must consider whether physical initiatives like plant and machinery and factories have been set up to produce gloves.
Investors must also consider the number of production lines and production capacity that has been planned.
And if the PLC intends to acquire a glove related business, they must consider the current stage of acquisition. They need to know whether a sale and purchase agreement has been signed.
Sometimes the parties are at the exploration stage and only have a memorandum of understanding (MOU). MOUs are not contracts and even contracts can be broken. There is no certainty, especially at the MOU stage.
In addition, as medical gloves are categorised as medical products, be prepared for possible lengthy certification and other processes before the end-product becomes marketable.
Furthermore, as the gloves business is becoming increasingly competitive, glove makers must constantly invest in R&D and automation to obtain a competitive edge. Again, this will require significant financial investment.
- The financial muscle: The PLC should have the necessary financial muscle to carry out its proposals. A quick read of the financial statements together with relevant metrics such as liquidity, solvency, operating efficiency and profitability will give prima facie evidence of existing financial strength.
To a certain extent, the financial strength of the PLC will determine the financial muscle that the company has to undertake a successful venture. The existing financial strength will also indicate the ease with which it will be able to raise new funds.
- The reputation of the board/management: Some board/management are good, some are bad, and some are ugly…by reputation.
Shareholders should reckon that the fate of their investment is partially hinged on the reputation of these drivers. Minority shareholders must bear in mind that perception (of reputation) is just as important as reality as it is said that perception shapes reality.
In their search for A Fistful of Dollars or for A Few Dollars More, minority shareholders should remind themselves that informed investing should be the order of the day.
By the way, A Fistful of Dollars, A Few Dollars More and The Good, The Bad and the Ugly are the three films in the “Dollars Trilogy” directed by Sergio Leone. – Jan 11, 2021
Devanesan Evanson is the CEO of the Minority Shareholders Watch Group, an independent research organisation to encourage good governance among public listed companies with the objective of raising shareholder value over time. He can be reached at [email protected].
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
