COMPARISON OF GLOVES MANUFACTURERS IN MALAYSIA – UPDATE FEB 2021

 

Malaysia’s gloves manufacturing sector is of great interests to investors due to its potential growth and profitability. Currently, Malaysia is the market leader in medical gloves export with a commanding 63% of the total global demand, followed by Thailand, China and Indonesia at 18%, 10% and 3% respectively. The global glove demand rose from 268 billion in 2018 to 300 billion in 2019. In 2020 this demand is expected to reach 330 billion on the back of a surge caused by the outbreaks of the COVID-19 pandemic.

Below is a comparison of 7 major gloves manufacturers counters listed in Bursa Malaysia. These counters include TOP GLOVE, HARTALEGA, KOSSAN RUBBER, SUPERMAX, COMFORT GLOVES, RUBBEREX and CAREPLUS. Also included in the comparison are counters related to the gloves industry. ES CERAMIC manufactures ceramic hand formers, HLT GLOBAL manufactures glove-dipping lines and KAREX is a condom manufacturer with plans to begin gloves manufacturing. Comparisons of the counters are made in terms of earnings, dividend return and efficiency of the management. Scores are assigned to each indicator and added up together to obtain an overall performance score for each counter, which gives an indication of the gloves counters most worthy to invest in.

SECTION 1 – CURRENT EARNINGS, SHARE PRICE AND PRICE TO EARNING (P/E) RATIO

In terms of share price and earning per share, TOP GLOVE, SUPERMAX and HARTALEGA are the top three performers. As shown by the five-year earning per share trend, most counters show a sharp rise in earnings in FY 2020, resulted from increasing gloves demands. Most counters with good earnings show a price-to-earning ratio below 15, which indicates that they are relatively inexpensive to invest in.

SECTION 2 – DIVIDEND PER SHARE, DIVIDEND YIELD AND DIVIDEND PAYOUT RATIO

Dividend payout by listed companies to shareholders is an additional return of investment to shareholders in addition to the increase of share values. Generous dividend payout to shareholders will attract more investors to invest in the counter.

TOP GLOVE paid the highest dividend per share in the latest financial year, which amounts to a dividend yield of more than 4%. Most glove counters dividend yields are less than 1%, which make them less attractive to invest in. Also notable that most counters dividend payout were less than 50% of their earnings in the latest financial year.

SECTION 3 – PERFORMANCE OF THE MANAGEMENT TEAM

The long term success and profitability of the glove counters will depend of the efficiency and smart strategies of the companies’ management team. Some of the indicators offer some ideas on the strength of the management teams.

Among the glove counters investigated, some of the better performing counters (e.g. TOP GLOVE, SUPERMAX and HARTALEGA) posted a return on equity that is above 40% in FY2020, meaning these counters are earning more profit per unit of capital provided by the shareholders. The usual ROE for a good glove counter is normally between 10-20%. In FY2020, due to the occurrence of the COVID-19 pandemic, the demand for medical gloves increased significantly, this in turn led to better profitability and ROE of most of the glove counters. As all glove manufacturers around the world ramp up their production output to meet the rising demand, unit selling prices of medical gloves may gradually reduce and normalize.

Also it is important that glove counters have the lowest possible cost-to-income ratio, meaning it is able to control operational cost to the lowest level. Glove counters generally incur high operational costs such a labour cost, energy cost, raw material cost and so on. Well-managed counters employ strategies such as increasing automation of the manufacturing process (to reduce reliance on human labour), employ technological solutions for inventory management and quality control and so on to reduce cost and improve earnings. Ideally the cost-to-income ratio should be controlled to below 1000 to improve profitability of the operations. Top manufacturers such as TOP GLOVE and HARTALEGA have consistently be able to control cost-to-income ratio to around 200%, by improving workflow productivity, yielding greater outputs, higher economies of scale and production efficiencies. In FY2020, in particular, most glove manufacturers are achieving cost-to-income ratio of below 300%, due to increased earnings in this financial year.

Capital expenditure is important for the glove counters in three aspects. Firstly, the investment into building new factories to increase their production capacity. Secondly, investment into new and advance technologies to further automate the manufacturing processes, in order to further reduce reliance on labour workforce. Finally, glove counters management also pay attention into investment in renewable energy sources, to reduce energy costs. Overall, most of the well-performing glove counters have significant capex spending in order to maintain the manufacturing plants efficiencies at the most optimum level as well as expanding manufacturing capacity. This is important for the future developments of the companies. It is noted that in FY2020 TOP GLOVE is spending the highest amount (RM820 million) in building new manufacturing plants, aiming to maintain its position as the market leader.

SECTION 4 – CASH AND ASSETS VALUES

Sufficient amounts of assets and cash are important for security of the companies in case any emergency situations happen. According to below graphs, it is shown that counters such as TOP GLOVE, SUPERMAX and HARTALEGA are well-supported by sufficient amount of assets, such as net tangible assets (NTA), market capital and cash flows. So, overall these counters are safe to invest in.

SECTION 5 – MARKET CONFIDENCE ON THE COUNTERS

Overall, there is great interest to invest in the glove counters, which is shown by the number of shareholders and daily trading volume. Also noted most of the top glove counters are well supported by institutional investors such as EPF, foreign and local investments funds and insurance companies.

 

SECTION 6 – OVERALL PERFORMANCE AND SCORING OF THE GLOVE COUNTERS

Each of the investigated glove counters are assigned a score based on the above indicators. For each indicator, the best performing counter is given score 10, the second best performing counter is given score 9 and so on. The total score for each counter is added up to give an overall performance score of each counter. According to the below graph, overall top 4 best performing counters are TOP GLOVE, SUPERMAX, HARTALEGA and KOSSAN RUBBER, respectively. In conclusion to the above analysis, these are the four counters most recommended to invest in the glove sector.

NOTES:

**DATA BASED ON ROLLING 4 QUARTERS AS OF 14/2/2021 AND THE LATEST PUBLISHED FINANCIAL REPORTS.

VOL: VOLUME, EPS: EARNING PER SHARE, NTA: NET TANGIBLE ASSET PER SHARE, DPS: DIVIDEND PER SHARE,

P/E: PRICE EARNING RATIO, ROE: RETURN ON EQUITY, DY: DIVIDEND YIELD, DPR: DIVIDEND PAYOUT RATIO

 

Latest analysis reports of individual glove counters:

 

1.       TOP GLOVE CORPORATION BHD

https://louisesinvesting.blogspot.com/2021/02/comments-on-top-glove-corporation-bhd.html

2.       SUPERMAX CORPORATION BERHAD

https://louisesinvesting.blogspot.com/2021/02/comments-on-supermax-corporation-berhad.html

3.       HARTALEGA HOLDINGS BERHAD

https://louisesinvesting.blogspot.com/2021/02/comments-on-hartalega-holdings-berhad.html

4.       KOSSAN RUBBER INDUSTRIES BERHAD

https://louisesinvesting.blogspot.com/2021/02/comments-on-kossan-rubber-industries.html

5.       COMFORT GLOVES BERHAD

https://louisesinvesting.blogspot.com/2021/02/comments-on-comfort-gloves-berhad.html

6.       RUBBEREX CORPORATION (M) BERHAD

https://louisesinvesting.blogspot.com/2021/02/comments-on-rubberex-corporation-m.html

7.       CAREPLUS GROUP BERHAD

https://louisesinvesting.blogspot.com/2021/02/comments-on-careplus-group-berhad-0136.html

8.       KAREX BERHAD

https://louisesinvesting.blogspot.com/2021/02/comments-on-karex-berhad-5247-update.html

9.       ES CERAMICS TECHNOLOGY BHD

https://louisesinvesting.blogspot.com/2021/02/comments-on-es-ceramics-technology-bhd.html

10.   HLT GLOBAL BERHAD

https://louisesinvesting.blogspot.com/2021/02/comments-on-hlt-global-berhad-0188.html

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