Lower ASPs to affect new glovemakers’ plans

If new glove companies cannot sell their products at the ASPs anticipated, they may incur a mild profit, breakeven or even loss

By ALIFAH ZAINUDDIN / Pic By MUHD AMIN NAHARUL

EXPLOSIVE profits declared by local top glove producers over the past three quarters have seen many other companies venturing into the glovemaking business, ranging from property developers and construction firms to a bus operator and ceramics maker, as they rush to grab a slice of the glove boom ignited by the Covid-19 pandemic.

Most recently, loss-making container shipping firm PDZ Holdings Bhd announced plans to raise as much as RM100 million for its glove manufacturing venture. It aims to yield a production capacity of up to 829 million pieces of gloves annually.

Data compiled by The Malaysian Reserve (TMR) shows there have been at least 25 companies listed on Bursa Malaysia that have expressed their interest in the still- lucrative industry, with companies pledging to produce up to 92 billion pieces of gloves per annum in total, when their facilities are commissioned fully.

Top Glove Corp Bhd, the world’s largest glove manufacturer, currently has an annual production capacity of 96 billion pieces to compare.

Despite the slew of interests, not all companies have made positive progress on their new venture, allowing both investors and market observers to work out who the genuine players are.

Malacca Securities Sdn Bhd head of research Loui Low expects more companies to pull out than join the glove bandwagon in the months ahead, in line with projections of lower nitrile glove average selling prices (ASPs) and constraint of raw material.

“I think from this point onwards, we will see more companies starting to realise their capacities in producing rubber gloves now that prices have peaked and raw materials are not readily available.

“Companies are expected to be tested with limited business activities during this period. We will see who will survive when the tide goes out,” Low told TMR.

AT Systematization Bhd falls under the few that have made exceptional progress on its glove pursuit. The company was the first among the new entrants to begin producing gloves, just four months after it announced its venture into the industry.

Last month, the company stated it is on track to reach an annual capacity of 2.6 billion pieces of gloves by the middle of this year at its site in Perak.

The group is now seeking to raise its capacity via a second plant, which would increase its output by a further 14.5 billion pieces.

The company has also inked deals with K-Star Sports Ltd and Kenteam Sdn Bhd to market its nitrile gloves in China, Taiwan, the US, Canada, Europe and Japan.

Property developer Mah Sing Group Bhd has set an ambitious target to be one of Malaysia’s top five rubber glove producers.

Its first rubber glove factory in Kapar, Klang, is expected to commence glove production next month. With a build-up of 228,800 sq ft (2.13ha), Phase 1 will have a production capacity of 3.68 billion pieces of gloves per annum.

Phase 2 — which includes exercising the option to take up the other portion of the Kapar factory to raise its annual capacity to another 3.68 billion — is targeted to happen when demand outstrips supply for Phase 1.

Mah Sing stated that it secured letters of intent from several prospective customers and the cumulative indicative orders have already exceeded the estimated maximum capacity for both phases of the Kapar factory.

Mah Sing said it will gradually expand up to 100 production lines if demand permits, producing up to 30 billion pieces of gloves per annum.

Meanwhile, Inix Technologies Holdings Bhd earlier this month said it has pulled out of a deal to acquire a factory in Sendayan, Negri Sembilan, as part of its initial plan to set up a rubber glove factory.

The IT service company first announced its glove venture in August last year via a joint venture with Lyglan Properties Sdn Bhd to acquire the factory in Sendayan.

The cessation came weeks after Inix announced it is buying a 51% stake in operating glovemaking outfit L&S Gloves Sdn Bhd instead, which is capable of producing 92.88 million pieces of gloves per annum, for RM6.5 million.

Of the 25 companies identified by TMR, 21 have seen their share prices gain over the past year, with 16 stocks more than doubled in value over the period despite coming off their highs.

Market excitement over the rubber glove foray also saw three companies slapped with unusual market activity (UMA) queries from the stock exchange regulator on the sharp rise of their share price and volume.

Bus transport company Gets Global Bhd alone has received three UMA queries since it announced its glove venture in September last year.

Its shares shot up as much as 8,000% or RM4 over the past year to as high as RM4.05 on Nov 16, 2020, rising from a 52-week low of 5.5 sen. The past five years have seen the counter trading mainly below 40 sen.

The company has yet to make any announcements on its glove venture’s progress apart from its proposal to raise RM87 million via private placement of new shares to its major shareholder to construct its glove manufacturing facilities.

With all the varying efforts, it remains to be seen whether all the euphoria and hard work will translate into gains, given the expected lower ASPs.

Low said if the new glove companies cannot sell their products at the ASPs anticipated, they may incur a mild profit, breakeven or even post a loss.

“If their initial target was to break even in six months, they might take longer than expected to do so now depending on the ASPs, their capital expenditure and costs involved to set up the plant,” Low said.

MIDF Amanah Investment Bank Bhd head of research Imran Yassin Md Yusof said many factors will affect the companies’ outcome, including the progress of their facilities, raw material input cost, production efficiency and customer relations.

“Based on the overall industry trend, demand is more than supply in 2021, which should continue to bode well for existing glove companies in terms of sales and earnings,” Imran Yassin told TMR.

Low noted that while there may still be interest from new players who’d want to come in, success depends partly on how fast companies can get their production lines up and running, as well as having a feasible sales model.

“Breaking even is one thing, but whether companies can be successful after a year or so in the business will depend on management. So, before they proceed any further, they will have to make the necessary calculations to know if it will be worth the risk.”