MAH Sing Group Bhd’s recent plunge into the glove industry may be a drag to its near term earnings considering the fast-declining average selling prices (ASPs) for gloves in recent times.
While property market outlook is improving with better economic outlook post-lockdown, Maybank IB Research is wary that the falling ASPs could eventually trigger an inevitable price war among existing glove makers.
This has prompted the research house to downgrade Mah Sing to “sell” (from “hold” previously) with a lower target price of 65 sen (from 88 sen previously).
“We lower our FY2021-2023 earnings forecasts by -19% to -49% to factor in lower ASP assumptions (-23% to -40%),” projected analyst Wong Wei Sum in a company update.
“Our last check with the glove players revealed that ASP has already hit circa US$30 per 1,000 glove pieces for November 2021 orders (-25% from September).”
With the stiff competition from China, Maybank IB Research expects ASP outlook to remain challenging with a looming prospect of price war.
“We believe strong balance sheets and low operating costs are important factors that are needed to weather through the downturn,” opined the research house.
“Mah Sing’a net gearing was 0.34 times as of June 2021. It has recently completed the issuance of five-year secured and unrated sukuk (Islamic bond) worth RM300 mil (fixed profit rate: 4.9% per annum payable semi-annually).”
Above all else, Maybank IB Research is also concerned about Mah Sing not deriving any competitive edge as compared to other existing glove players.
“Being a new player in the glove industry, Mah Sing does not enjoy much economies of scale as compared to the veterans,” justified the research house. “Moreover, we suspect it paid premium pricing (on staff and installation works) to get its factory ready within a short period, making it even less competitive in cost/pricing. “
Moreover, Maybank IB Research understood that Mah Sing’s average cost which was about US$36-US$40 per 1,000 glove pieces as of end-April should be lower now with a decline in nitrile latex price (-12% since April).
At the close of today’s mid-day trading, Mah Sing was down 4 sen or 4.94% to 77 sen with 4.05 million shares traded, thus valuing the company at RM1.87 bil. – Nov 1, 2021
