The onset of the Covid-19 pandemic has led to severe conditions for many economic sectors, even leading to the closing down of a significant number of smaller businesses while affecting the employment rate of Malaysia. However, not everyone is a loser in this pandemic.
Enter the glove making sector of Malaysia, which produces more than half of the world’s rubber glove supply, which saw increases in demand to the point it has caused supply-demand imbalances, to the point where glove makers can dictate their average selling prices (ASPs) up to 11 months in advance. This increase is directly linked to the increase in demand for personal protective equipment (PPE), a necessity in combating Covid-19.
This led to glove makers shooting upwards both in terms of order books, revenue, and profits, with the four glove makers in Malaysia seeing their stocks rallying to intra-year highs, with their shares doubling, or in one case, quadrupling, in value.
New billionaires on the block
Of course, with how the companies are rallying, it stands to reason that the founders of the companies will stand to gain as well. This actually propelled two of the owners into the billion dollar club, with the most recent being Stanley Thai Kim Sim of Supermax Corp Bhd.
Standing as the majority shareholder of Supermax with a 21% stake as of the company’s 2019 annual report, Thai had founded Supermax with his wife in 1987, with the company starting as a trading business distributing rubber gloves.
This then led them to start their first manufacturing facility in 1989 under the brand Supermax, which the company noted made it the first own brand manufacturer for rubber gloves in Malaysia. The company now exports to over 160 countries from its 12 factories.
Affin Hwang Capital, BIMB Securities, Kenanga Investment Bank and MIDF Research all have buy/outperform calls on the stock at this time, citing the Covid-19 pandemic as a rallying point for the glove maker, with revenue expected to pass RM2 bil in 2022.
The company has a market capitalisation of RM9.8 bil on June 17. From a share price of RM1.38 on Jan 2, the stock rose to an intra-year high of RM8.88 on June 5, to close at RM7.19 on June 17.
As the latest of the glove makers to join the billionaire club, Thai has not made as clean a journey as he could. In 2017, he was sentenced to a jail term of five years and slapped with a fine for RM5 mil for insider trading, which he is currently appealing.
The offence, under Section 188 of the Capital Markets and Services Act 2007, could see a punishment of a mandatory jail term not more than 10 years, with a fine not less than RM1 mil.
The other newcomer to the billionaire’s club is Kossan Rubber Industries Bhd’s Lim Kuang Sia, now worth US$1.1 bil (RM4.7 bil). Lim founded Kossan in 1979, following his graduation as a chemical engineer.
In its formative years, Kossan specialised in cutlass bearings for the fishing industry, before moving on to glove manufacturing in 1988, spurred by the rising demand in rubber gloves due to the AIDS epidemic.
With his family holding 49.76% of the company’s shares as of Kossan’s 2019 annual report, the doubling of the value of the shares now compared to the start of the pandemic has raised his personal net worth past the billion dollar mark.
Hong Leong Investment Bank, Kenanga Investment Bank, Affin Hwang Capital, UOB Kay Hian, BIMB Securities and AmInvestment Bank all have buy/outperform calls on the stock, with MIDF Research and PublicInvest holding neutral.
The market cap for Kossan stands at RM10.74 bil on June 17. Closing at RM4.16 on Jan 2, the stock saw an intra-year high on June 1 and June 9, hitting RM9.13. The stock closed at RM8.38 on June 17.
What about the old guard?
Of the top four glove producers, next on the list would be Hartalega Holdings Bhd, founded by Kuan Kam Hon, the executive chairman, whose personal net worth is at US$5.1 bil as of June 17, 2020. A high school dropout who had started in construction helping out at his father’s company in 1969, Kuan started Hartalega, which began manufacturing gloves in 1988.
Now, he owns an indirect stake of 49.62% in a company that has a market cap of RM40.45 bil, which has gone on to export gloves to over 40 countries and manufactures 38.1 billion gloves per annum, with that number expected to go to 43.7 billion in 2022.
Hong Leong Investment Bank, Kenanga Research and Affin Hwang Capital all have buy calls on Hartalega, buoyed by the growth it has seen due to the pandemic and the increased awareness on personal hygiene. UOB Kay Hian, MIDF Research and PublicInvest all maintain neutral calls, with the belief that most of the positives have already been priced in.
Hartalega’s shares rose to an intra-year high of RM13.18 on June 1, from a share value of RM5.35 on Jan 2. The stock closed at RM11.94 on June 17.
Last but not least is Top Glove Corp Bhd’s founder Lim Wee Chai, who saw his personal net worth boosted to US$2.5 bil, according to Bloomberg, on the back of the increased demand in gloves over the course of the pandemic.
Lim established Top Glove in 1991, which has since grown to hold a market share of 26% of the global market, according to the company’s website. He holds a direct and indirect stake of 35.8%, and this saw his personal net worth grow following the tripling of Top Glove’s stock since the start of the Covid-19 pandemic.
Now, with a market cap of RM42 bil, Top Glove stands as the largest glove maker in Malaysia, and exports to 195 countries worldwide.
Maybank Kim Eng Research, Kenanga Research, Hong Leong Investment Bank, CIMB Securities and UOB Kay Hian have buy/outperform calls on the company, due to how Top Glove can command its ASP, with ASP hikes also receiving no pushback due to the scarce supply.
However, MIDF Research and PublicInvest Research both have neutral calls on the glove maker, citing positives that have largely been priced in, as well as how the high demand will not be sustainable in the long term.
The share value for Top Glove rose from RM4.65 on Jan 2, 2020, to an intra-year high of RM17 on June 9, with the stock closing at RM15.76 on June 17. – June 17, 2020
