Association tells glove makers to up prices

Written by Surin Murugiah
Wednesday, 20 October 2010 15:16


KUALA LUMPUR: The Malaysian Rubber Glove Manufacturers’ Association (Margma), whose members collectively supply 60% of the global rubber latex glove consumption, advised its members to raise glove prices in line with high raw material costs and continued weakening of the US dollar.

This may well explain the share price surge among the rubber glove makers on Bursa Malaysia yesterday.

Top Glove Corporation Bhd rose 19 sen to RM5.68 Supermax Corporation Bhd was up 14 sen sen to RM4.65, Latexx Partners Bhd up four sen to RM2.86, and Kossan Rubber Industries Bhd gained two sen to RM2.86.

But Hartalega Holdings Bhd shed four sen to RM5.42 while Rubberex Corporation (M) Bhd lost 0.5 sen to 85.5 sen.

In a statement yesterday, Margma president KM Lee said most rubber glove manufacturers had started raising selling prices of their products to reflect the rising raw material costs and the weakening of the US dollar.

“If the orders forthcoming do not match the glove price requested, glove makers have no choice but to reduce the output,” said Lee.

Margma said the price of natural rubber latex had increased by about 19% from an average 657.25 sen/kg in January 2010 to a new record high of 782 sen/kg last Friday.

Meanwhile, the US dollar has weakened against the ringgit by around 13% compared to 12 months ago, it said.

Rubber futures contract in Shanghai hit an all-time high yesterday boosted by strong demand at a time of restricted supply in main producing countries. Concerns that rubber production in China will be affected by typhoons also lent support to the futures price.

The Shanghai rubber futures contract for March delivery hit a record 33,000 yuan (RM15,438) per tonne, up 3.8% from the previous high of 31,800 yuan per tonne marked on Oct 15.

Lee said despite the strong headwinds, the industry would remain bullish as demand for gloves was expected to grow at between 8% and 10% annually.

“We expect further growth in the industry on the back of rising healthcare awareness in emerging markets, especially in China, India and the Latin American countries.

“Comparatively, the healthcare expenditure in these regions is relatively low against what is being spent in the US, Europe and Japan,” said Lee.

Lee added that the domestic glove industry was to a large extent recession-proof and was relatively unscathed even during the recent economic downturn, mainly due to gloves being a necessity in the healthcare sector.

However, he pointed out that the glove industry was facing constant challenge with the ever-fluctuating raw material prices, particularly natural rubber latex for rubber gloves and crude oil for nitrile gloves.

The association also urged the government to be considerate in the removal of the natural gas subsidy by not overburdening an already challenging industry with a big and sudden gas price hike.

The removal of the subsidy for natural gas should be done over a period of time, it said.

The association has 46 members and 89 associate members. The ordinary membership is open to all bona fide rubber glove makers in Malaysia while others who directly involved in the trade or industry are eligible for associate membership.


This article appeared in The Edge Financial Daily, October 20, 2010.

So, you like Glove Sector - Which Stock will you Pick?

Analysis of the Glove Sector.
https://spreadsheets.google.com/pub?key=0AuRRzs61sKqRdDM1ZFNXQ2ZPRHBYcFJjd1lDNFVYdFE&hl=en&output=html

The top 6 glove companies are priced at RM 8.7 billion in market capitalization.  They generated a total of about RM 766 million in earnings the last 12 months.

A quick look at Adventa (8.5.2010)

A quick look at Adventa (8.5.2010)
http://spreadsheets.google.com/pub?key=tpg78jjich_9vs6GZN8r5KA&output=html

Comparative Analysis of Glove Companies

Comparative Analysis of Glove Companies
http://spreadsheets.google.com/pub?key=tiEBLAmYR0EJiE7ccJcc8bw&output=html

Rubber glove companies enjoy pricing power and steadily rising sales

Judging from the capacity expansion by rubber glove companies, it appears that larger glove companies like Top Glove, Supermax and Sempermed (Thailand) have more moderate expansion plans as a percentage of existing capacity, while smaller ones like Latexx and Adventa have more aggressive expansion plans and are likely to show higher earnings growth in 2010. 

An oversupply of rubber gloves is unlikely in 2010 but could be a worry in 2011 when more capacity comes onstream. Assuming that the 150 billion-a-year medical glove market grows by 8% a year, an additional capacity of 12 billion gloves will be required per year.  Rubber glove companies have been able to pass on higher costs arising from rising latex prices, with Top Glove increasing prices again in January 2010. 

Nevertheless, producers of nitrile gloves may now enjoy better margins as the cost advantage that latex gloves enjoy over nitrile gloves may have narrowed as latex prices have risen faster than nitrile prices.  Ratings of Malaysian rubber glove companies are still cheaper than those of Ansell, SSL International and the Malaysian market.

The Edge
1.2.2010
By Choong Khuat Hock


Comments:

The whole glove industry is growing.  Due to capacity expansion and their smaller sizes, the smaller glove companies are expected to show faster earnings growth than the bigger glove companies.

The industry business is still resilient.  Profit margin is either maintained or improving.  Glove companies are still able to pass the cost to the customers.  How long will this last?

This industry is highly competitive.  The business is driven by volume and price.  When capacity to supply outstrips demand, those companies with durable competitive advantage are expected to survive.  Those low cost producers will be the big winners and leaders.  Those companies that automate their production with good quality control will probably be able to lower their costs per unit through increasing productivity.  It is possible that those leveraging on low human labour costs now with no or few plans for increasing automation of the manufacturing processes, may eventually lose out to the former in the future both in terms of quality, productivity and costs.

Adventa 22.12.2009

Adventa Quarterly Results
http://spreadsheets.google.com/pub?key=tuKwXFcx7Ulr8SIM0SKas3Q&output=html

Comment:  Trading at rather high trailing PE for its fundamentals.

Adventa's 4Q net profit dips marginally

Written by Yong Min Wei
Wednesday, 23 December 2009 00:27

KUALA LUMPUR: ADVENTA BHD []'s net profit for the fourth quarter ended Oct 31, 2009 (4QFY09) dipped marginally to RM5.39 million from RM5.43 million a year ago despite a 15.2% rise in revenue to RM74.75 million from RM64.91 million.

According to a Bursa Malaysia filing yesterday, the company attributed the higher revenue to progressive addition of capacity in the surgical and dental gloves products. It also said the cost reduction exercises and high yield has improved the margin.

Earnings per share for 4Q shed 4.9% to 3.72 from 3.91 the same quarter last year.

Adventa proposed a final dividend of four sen per share tax exempt for 4QFY09 which is subject to the shareholders' approval at its coming AGM.

For the full year ended Oct 31, 2009, the company's net profit climbed 24.5% to RM17 million from the previous 13.66 million while revenue surged 52.1% to RM282.87 million as compared with RM185.94 million a year earlier.

On its current financial year prospect, Adventa said sales was expected to increase substantially gaining from the new capacities coming on stream and the new high output factory in Kluang, adding that the plant in Uruguay has been certified and would contribute to the profits.

"The group intends to increase investment into distribution and the life science division. These will be a strong contributor to the group in the future," it added.

http://www.theedgemalaysia.com/business-news/156189-adventas-4q-net-profit-dips-marginally.html


Adventa rises on higher earnings outlook

Tags: Adventa | earnings | OSK Research | Top Glove

Written by Joseph Chin
Monday, 21 December 2009 11:39

KUALA LUMPUR: Shares of Adventa rose in morning trade on Monday, Dec 21 on expectations of higher earnings for its fourth quarter results (4QFY09) to be released on Tuesday and after OSK Investment Research raised the target price from RM1.87 to RM3.58.

At 11.30am, the share price had risen six sen to RM2.94. There were 1.408 million shares done at prices ranging from RM2.89 and RM2.94.

OSK Research said it expected the earnings to be slightly better on-quarter, judging from the solid performance earlier of its peer, Top Glove. (Comment: The latest quarter result was actually worse.)

"Also, we understand that this would be the last quarter for recognition of the company's foreign exchange losses which should still amount to approximately RM4 million. Moving into FY10, Adventa is looking to capacity expansion again.

"We are upgrading our FY10 earnings by 42% in line with the improved numbers sans forex loss. Maintain Buy with a higher target price of RM3.58 (previously RM1.87)," it said.

http://www.theedgemalaysia.com/business-news/156008-adventa-rises-on-higher-earnings-outlook.html

Adventa rises on higher earnings outlook

Adventa rises on higher earnings outlook

Tags: Adventa | earnings | OSK Research | Top Glove

Written by Joseph Chin
Monday, 21 December 2009 11:39

KUALA LUMPUR: Shares of Adventa rose in morning trade on Monday, Dec 21 on expectations of higher earnings for its fourth quarter results (4QFY09) to be released on Tuesday and after OSK Investment Research raised the target price from RM1.87 to RM3.58.

At 11.30am, the share price had risen six sen to RM2.94. There were 1.408 million shares done at prices ranging from RM2.89 and RM2.94.

OSK Research said it expected the earnings to be slightly better on-quarter, judging from the solid performance earlier of its peer, Top Glove.

"Also, we understand that this would be the last quarter for recognition of the company's foreign exchange losses which should still amount to approximately RM4 million. Moving into FY10, Adventa is looking to capacity expansion again.

"We are upgrading our FY10 earnings by 42% in line with the improved numbers sans forex loss. Maintain Buy with a higher target price of RM3.58 (previously RM1.87)," it said.

Adventa surges on CIMB upgrade

Adventa surges on CIMB upgrade

Tags: Adventa | CIMB | Top Glove | Upgrade

Written by Joseph Chin
Thursday, 12 November 2009 10:38

KUALA LUMPUR: Shares of Adventa surged in early trade on Thursday, Nov 12 after CIMB Equities Research initiated coverage on the glove maker with an Outperform and a target price of RM4.12.

At 10.25am, it was up 17 sen to RM2.12 with 1.58 million shares done.

The research house said the prognosis for the medical glove industry is favourable given rising healthcare needs and greater awareness of the need for hygiene, especially with the rising incidence of health scares.

"Adventa is in a great position to tap into this growth as well as the growth arising from ageing populations around the world and more demand for elective surgery," it said.

CIMB Research said due to the company's smaller size relative to its biggest rival Top Glove, it pegged it to a 30% discount to its target market price-to-earnings of 15 times.

"This gives us an end-CY10 target price of RM4.12, which implies share price upside of 111%. We begin our coverage with an OUTPERFORM recommendation, premised on the potential share price trigger of improving quarterly earnings driven by its surgical glove and OBM segment as well as its ongoing expansion," it said.

http://www.theedgemalaysia.com/business-news/153469-adventa-surges-on-cimb-upgrade.html


Comment:  What gives?  Perception.

Glove makers take the lead

Glove makers take the lead

Tags: Adventa | Kossan | Supermax

Written by Joseph Chin
Thursday, 12 November 2009 16:31

KUALA LUMPUR: Glove manufacturers again saw renewed interest in late afternoon trade on Thursday, Nov 12, supported by analysts' positive outlook for the sector.

Adventa was up 29 sen to RM2.24 with 5.52 million shares done at 4.19pm after CIMB Equities Research initiated coverage on the glove maker with an "outperform" rating and a target price of RM4.12.

Supermax added 19 sen to RM3.83 with 6.54 million shares done while Kossan was up 15 sen to RM5.27.

http://www.theedgemalaysia.com/business-news/153518-glove-makers-take-the-lead.html

Glove companies

Valuation
Supermax, Topglove and Kossan

http://spreadsheets.google.com/pub?key=tIzNTWdhdVSJ803HE80Xn8Q&output=html

Rubber Glove Companies

Latexx appears to be succeeding in its aggressive growth plan. It is expected to post strong growth until 2012 as it ramps up current production capacity of 5.2 billion pieces a year to six billion pieces by the end of this year, 7.5 billion by 2010 and nine billion by 2012.

Latexx and Adventa have seen the most aggressive capacity expansion (as a percentage of current capacity) among rubber glove companies.  Nevertheless, Latexx is confident of selling the additional capacity as it currently cannot meet its customers' demand.  All its facilities are located in Kamunting, which ensures better quality control and lower operating costs. 

Adventa has a 15% share of the global surgical glove market.  As it is operating at close to full capacity, Adventa is planning to aggressively expand its surgical glove production from 250 million pieces a year to 350 million by early 2010 and 450 million by end-2010.

From the edge newspaper:  Focussing on FY 2010 valuations, the rubber glove companies are still cheap in an industry where Malaysia is the dominant player and where pricing power exists.  Adventa is the cheapest rubber glove company with a prospective FY2010 price-earnings ratio (PER) of only 7.5 times. 

Rubber glove companies offer a rare combination of being defensive and offering growth.  Investors would be familiar with those like Top Glove, Supermax, Kossan Rubber and Hartalega, but there are some smaller ones like Adventa, Latexx and Singapore-listed Riverstone that operate in interesting niches and perhaps offer better growth prospects as they start from a lower base.

Company Share price Market Cap
Top Glove 8.11 2409.8 m
Hartalega 5.45 1320.6m
Kossan 4.64 741.8m
Supermax 2.80 727.2 m
Latexx 2.27 443.0 m
Riverstone Holdings 0.44 331.0m (Singapore)
Adventa 1.73 218m
Medi-flex 0.09 103.3m (Singapore)
Shun Thai Rubber 1.60 81.0m (Thailand)