| A glove manufacturer in Malaysia that hasn't been covered by analysts is VIP Gloves. It is listed on ASX and had a recent market cap of just A$54 million (share price: 7.1 cents). With a surge in demand for its nitrile gloves during the pandemic, VIP Gloves’ EBITDA (earnings before interest, taxes, depreciation and amortisation) rocketed 340% q-o-q to A$4.5m in 3Q of this calendar year, from A$1m in 2Q. The current 4Q calendar year 2020 is expected to deliver higher EBITDA as selling prices have gone higher. On 30 Nov 2020, the company said that its order book was full till end-2021 and its factories were working 24/7. Two corporate events this month (Dec) caught some market attention:
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See also:
• This M'sian glove maker is valued at $60 million while peers have surged
• VIP Gloves capitalises on soaring demand for PPE equipment
Meanwhile, here are excerpts from CGS-CIMB report on the Malaysian glove scene, featuring the better-known Singapore-listed Riverstone Holdings and UG Healthcare.
Analyst: ONG Khang Chuen, CFA
Gloves – Neutral (Top pick: UG Healthcare)  Recent vaccine newsflow has been a dampener to glove makers’ share price, as concerns arise that ASP could see an earlier/steeper decline with the stronger-than-expected effectiveness of Covid-19 vaccines (Pfizer: 95%; Moderna: 95%). However, we remain positive on the fundamentals and expect FY21F to be another year of record profits for glove makers. We also expect ASPs to remain on an uptrend in coming months and stay high in CY21F even with the widespread availability of Covid-19 vaccines. Currently, UGHC and RSTON are trading at 4.7x and 9.4x CY22F, respectively, which we think more than priced in earnings normalisation post-Covid-19. We see positive share price momentum for glove stocks in 1H21F as investors return their focus to near-term fundamentals (post the near-term vaccine euphoria). UGHC is our preferred pick in the sector given its relatively cheaper valuation and our expectations of higher normalised profits, backed by a 59% yoy manufacturing capacity expansion in CY21F. |
All eyes on ASP
With the recent positive newsflow on vaccine development, all eyes are on how long the elevated glove ASPs can sustain and how ASPs will stabilise post-Covid-19.
We expect ASPs to remain on a firm uptrend in 1Q21F, with the recent resurgence in Covid-19 cases boosting glove demand, while supply remains weak given the disruption from Top Glove’s production halt.
We understand that end-users remain insensitive to pricing and are in fact willing to pay a premium to secure stable supply.
MARGMA notes that the glove industry’s current contractual glove ASPs are about US$70-80 per thousand pcs, some 200% higher than pre-Covid-19 levels (c.US$25).
Without demand or supply shock in sight, we expect ASPs to stabilise on a gradual basis, in tandem with better demand-supply dynamics starting 2H20F.
MARGMA estimates that ASPs could still remain at c.50-60% above pre-Covid-19 levels by 2023 (c.US$35 per thousand pcs).
We have already factored in more conservative assumptions in our model — we estimate ASP to decline 3% monthly beginning Apr 2021, which brings our ASP assumptions to c.US$35 by end-2022F, about 1 year earlier than MARGMA’s expectations.
| With this, we see fundamentals remaining strong in CY21F, with glove makers on track to another year of record profit. We forecast UGHC to see net profit growth of 7.7x to S$103m in FY21F, while RSTON can also see net profit growth of 88% yoy to RM1.1bn in FY21F. |
Full report here.