THERE are many who think the rubber glove mania is coming to an end as the race to develop a Covid-19 vaccine intensifies. Others, including major property developer Mah Sing Group Bhd, beg to differ.
Mah Sing is, in fact, making its foray into the glove manufacturing – and in in a big way.
The group plans to start its first manufacturing line as early as mid-2021 and is gunning to be one of the country’s top five biggest rubber glove producers.
It will be pumping in RM150mil to set up the first phase of its glove-manufacturing factory in Klang that will have a production capacity of 3.68 billion gloves per year! Phase two will see another 3.68 billion pieces of gloves per annum being added to its capacity.
Ultimately, Mah Sing wants to become one of Malaysia’s largest glove producers making 30 billion gloves per year.
The business is to be spun off into a separate listing.
Rubber gloves mark something of a return to its roots for Mah Sing. While it is mainly known as a property developer, the group began as a plastic trader in 1965 before moving into plastic manufacturing in 1979. Mah Sing was listed on Bursa Malaysia’s Second Board as a plastic manufacturer in 1992. Two years after its listing, the group went into property development.
Today, its annual new project launches are in billions of ringgit, which makes it one of the main property developers in the country.
As at June 30, Mah Sing said it had a landbank of 802ha (2,005 acres) with estimated gross development value and unbilled sales totalling RM24.64bil, which can provide it with earnings visibility for at least eight years.
But the property market has been softening in recent times and Mah Sing has seen its profitability slowly declining.
Many businesses are reeling as a result of Covid-19 fallout.
Even before Covid-19, Mah Sing had been seeing a slowing in sales as the result of the softening local property market.
It has revised down its 2020 sales target to RM1.1bil from RM1.6bil due to the longer period needed to convert bookings into sales.
But the group is on a better footing thanks to its cash position of RM1.13bil as at June 30.
Mah Sing says the diversification into glove manufacturing is to mitigate the risks the company faces from the Covid-19 pandemic.
It is also taking advantage of the boom in rubber glove demand.
“The group anticipates that the proposed diversification can help mitigate the potential downside risk to the group arising from wide-ranging effects of the Covid-19 pandemic on the local and global economies, ” Mah Sing said on Thursday, after announcing its diversification plan.
Founder and group managing director Tan Sri Leong Hoy Kum (pic) is confident that the group is leveraging on its experience as a plastics manufacturer for more than four decades to set up its glove manufacturing plant.
“Based on our 40 years of being in the plastic product manufacturing business, we feel we can enter it (glove manufacturing). Our turnaround period is also very fast, ” Leong said.
“The gloves business can leverage on the existing processes from Mah Sing’s plastic business such as the raw material procurement, quality control, research and development, logistics and supply chain planning, ” he told reporters on Thursday after revealing the company’s plan to diversify.
Mah Sing targets the glove manufacturing business to contribute at least 25% of its profits. The factory in Klang is expected to start its operations as early as the second quarter of next year.
“The phase two expansion is targeted to happen when demand outstrips supply for phase one, ” said Mah Sing CEO Datuk Ho Hon Sang. For comparison with Mah Sing’s 30 billion gloves a year target, the world’s largest rubber glove producer Top Glove Corp Bhd can manufacture up to 85.5 billion gloves a year, followed by Hartalega Holdings Bhd with an annual capacity of 39 billion gloves, Kossan Rubber Industries Bhd at 28 billion and Supermax Corp Bhd at 24 billion pieces per year.
Surge in glove capacity
The Covid-19 pandemic has seen a surge in demand for rubber gloves that sent the share prices of local glove manufacturers skyrocketing.
Malaysia’s glove export has increased nearly 20% to 230 billion pieces currently, up from 192 billion pieces in 2019 amid the heightened global demand for medical gloves due to the prolonged pandemic.
It was reported that the undersupply of rubber gloves has driven spot prices by 400% higher to between US$80 to US$160 per 1,000 pieces.
According to CGS-CIMB Research, the production cost of gloves is estimated at US$25-US$27 per 1,000 pieces.
Malaysian Rubber Glove Manufacturers Association (Margma) estimates that the global demand for gloves is expected to reach 330 billion pieces of gloves this year, an increase of 11.49% from 2019 when it was 296 billion pieces, giving Malaysia a forecast 67% market share.
Nonetheless, it is worth noting that the glove big boys are also investing heavily to expand their capacity.
Top Glove for instance is investing RM1.9bil to increase another its annual capacity by 19.5 billion gloves to 105 billion gloves a year by 2021.
Hartalega is planning to ramp up its expansion to an annual 76 billion glove production capacity by 2022, more than double its current size.
Supermax plans to also double its capacity to 44 billion per year by 2024 and Kossan is adding another seven billion gloves capacity per year to 35.4billion gloves in 2021.
Overcapacity by next year?
UOB Kay Hian Research says that it is cautious on the long-term outlook of gloves especially on the selling price of gloves.
It expects that Mah Sing would face operational hiccups in the early stage of production. particularly the sourcing of raw materials for nitrile as well as hiring labour which has become increasingly challenging for rubber glove producers.
“Although diversification is a good strategy, particularly at a time when the property market is weak, we are concerned on the industry’s outlook, and whether the sky-high average selling price (ASP) can be sustained till next year when its production lines are commissioned.
“In addition, we also understand that supply of raw materials, especially for nitrile gloves, is scarce; hence newer players may need to pay a premium for raw materials which will then affect their profit margin.
“Essentially, we also think Mah Sing will need to undergo a gestation period throughout 2021 when the plants are first commissioned, after which the vaccine for Covid-19 may already have been discovered, ” UOB says in a report yesterday.
However, CGS-CIMB reckons that if Mah Sing’s glove unit expansion proceeds as planned, it expects the proposed diversification to contribute about RM140mil and RM220mil to its FY21 and FY22 net profits, respectively.
This is based on an average selling price assumption of US$50-US$60 per 1,000 pieces.
“We raise our FY21-22F earnings per share by 130%-197% to factor in the potential earnings contributions from gloves, ” it says.
Meanwhile, Mah Sing’s Ho believes the shortage of gloves will persist for a long time, even if a vaccine becomes available.
The group has also secured a letter of intent (LoI) from several prospective customers and the cumulative indicative orders have already exceeded the estimated maximum capacity for both phases of the Kapar factory.
“As a new player, the group is in a good position to take advantage of the spot price of gloves, which is about US$80-US$160 per 1,000 pieces, ” Ho said.
While the LOIs should provide some confidence in Mah Sing’s venture into glove manufacturing, the question remains if the demand and high price of rubber gloves will persist next year as more players jump into the glove-making bandwagon.
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