Gloves in numbers

The market capitalisation of Sime Darby Properties Bhd, SP Setia Bhd, Eco World Development Bhd, Mah Sing Group Bhd cumulatively is less than RM11bil. Kossan Rubber Industries Bhd’s market capitalisation is RM18.3bil while heavyweight Top Glove Corp Bhd commands a market capitalisation of RM64bil.

Going by the number of new players jumping into the fray, the glove play is here to stay for another year at least. The latest to join the glove bandwagon are property companies.

Titijaya Land Bhd and Aspen Group Holdings Ltd, two property-based companies are going into the healthcare sector, namely in gloves. Titijaya, in its announcement, stated it is diversifying into medical-related property development apart from going into manufacturing and distribution of medical devices, gloves and personal protection equipment (PPE).

Titijaya is partnering glove producer, Rubberex Corp Bhd and a Chinese company with the objective of penetrating the China market.

As for Aspen, which is listed in Singapore, it is setting up a plant in Kulim with CMY Capital Sdn Bhd and an individual as shareholders. They plan to start production a year from now with 1.1 billion pieces. Aspen has some 66 acres for the glove venture.In the last few weeks, some smaller names such as AT Systematization Bhd and INIX Technologies Holdings Bhd announced their ventures into the glove sector, a development that is not much to shout about.

But now we have big names such as CMY Capital, which amongst others are the owners of the prestigious St Regis Hotel in Kuala Lumpur, entering the fray.

CMY Capital is founded by Tan Sri Chua Ma Yu, a former stockbroker and co-founder of RHB financial group, and is no lightweight in the corporate world.

His entry into the glove sector is probably a signal that there is more value to be extracted from the industry.

If one looks from the perspective of investing in listed glove companies, the risk is obviously high. The price earnings multiple of glove companies are at astronomical levels. Anybody buying into glove stocks today is taking the risk that the earnings growth will continue for many more quarters.

The proposition is different for someone going into glove manufacturing. One of the key components is the availability of suitable sites to quickly put up a plant because at the moment there is value in glove manufacturing assets. The price to book valuations of glove companies are at an average of about 25 times at present.

This means, a glove producing facility today is priced at 25 times more than the value stated in its books.A year ago, the assets of glove companies were hardly taken into account in their stock prices.Today, anyone with a glove manufacturing facility is sitting on an attractive target. Bulk purchasers and wholesalers of gloves are prepared to finance assembly lines of independent glove manufacturers.

The idea of the new companies jumping into the glove manufacturing scene is probably to take advantage of the situation. They may want to dispose of their interest or lease the assembly line in a year or so.

Even if they get a valuation of five times the amount invested, it is much higher than the appreciation of a property.

Capitalisation comparison

On the topic of property, the value of glove companies stand head and shoulders over property companies. The market capitalisation of the smallest of the top four glove companies is more than the market capitalisation of the top four property companies in Malaysia put together.

The market capitalisation of Sime Darby Properties Bhd, SP Setia Bhd, Eco World Development Bhd, Mah Sing Group Bhd cumulatively is less than RM11bil.

Kossan Rubber Industries Bhd’s market capitalisation is RM18.3bil while heavyweight Top Glove Corp Bhd commands a market capitalisation of RM64bil.

In fact, the market capitalisation of Top Glove alone is more than the value of all the listed property companies on Bursa Malaysia. Hence, it makes sense for the major shareholders of Top Glove to dispose of their stake and gobble up majority stakes in all the property companies?

The glove run has created many millionaires. Since March this year, the market capitalisation of the top four glove companies is up by RM116bil. This does not include the increase in market capitalisation of the likes of Comfort Gloves Bhd and Careplus Group Bhd.

There would be some who would have taken their money from glove stocks and ploughed it elsewhere. For instance, a seasoned investor who had his money on glove companies for 15 years has taken money out of the sector and put it into property stocks.

Property is a natural hedge against inflation. With money so cheap and the major economies such as the US printing more dollars, inflationary pressures are bound to set in when the economy recovers. In that respect, putting some money into property may not be a bad idea.

There will be some still holding on to glove stocks, with the view that the Covid-19 pandemic has pushed permanent demand to higher levels. According to the Malaysian Rubber Glove Manufacturers Association, global demand is expected to be 345 billion this year and expected to grow at an average of 15% for the next five years.

Malaysia’s exports of rubber gloves in 2019 were 170 billion, which makes up about half of the global demand for this year. In the next 18 months, Malaysia’s production is expected to be up by about 30% on the back of all major and minor producers expanding their operations.

Top Glove, which currently produces 78.7 billion pieces of gloves is expected to increase production to 106 billion by end of this year and touching 138 billion pieces by end of next year. Kossan Rubber is producing 32 billion pieces, up from the 29 billion pieces it produced at the end of last year.

Supermax Corp Bhd is investing RM1.3bil to increase its production capacity by more than 100%. The company now produces 22.25 billion pieces and will increase its output in phases to 48.42 billion by 2022.

In a year’s time, there will be ample supply. The supply may even be 50% more than the 170 billion pieces Malaysia produced as of end 2019. It only means margins will start coming down and there would be more mergers and acquisitions. However, surely not all glove manufacturers would fetch good values next year.

M. Shanmugam is former specialist editor of The Star. The views expressed here are solely that of the writer’s.

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