KUALA LUMPUR: Rubber glove manufacturer Adventa Bhd hit limit up yesterday on speculation that it could be a potential acquisition target by a healthcare firm based in the US.
According to market speculation, the US-based firm is looking at Adventa to obtain exposure to the rubber glove sector for upstream integration of its healthcare business.
“The US firm had previously been in preliminary talks with Top Glove Corporation Bhd but had decided that Top Glove was too big a manufacturer which would be too expensive to purchase,” a source said.
“They wanted a smaller and more niche firm which could adequately fit into their strategic plans because they could use some of the gloves for their operations and sell the surplus.”
Top Glove has a market capitalisation of RM3.12 billion against Adventa’s market capitalisation of RM398.63 million at yesterday’s closing prices.
Maybank Investment Bank was quoted by newswires as stating that any buyout of niche glovemaker Adventa will be done at a price-to-earnings ratio of 11 times multiple of FY2011’s forecast earnings. This would peg the potential acquisition price at about RM3.40, according to sector analysts.
Adventa hit limit up in trading yesterday, gaining 72 sen or 37.5% to close at RM2.64 with 7.87 million shares changing hands.
“It is not often that a stock hits limit up. And this news could potentially be a re-rating catalyst for the rubber glove sector if it really happens,” said a rubber glove sector analyst with a local investment bank.
Sentiment in other rubber glovemakers were also energised after rumours emerged that Adventa had been courted by suitors. Other listed glovemakers also closed the trading day yesterday broadly higher, with some topping the gainers list.
Shares of Hartalega Holdings Bhd advanced 33 sen to RM5.29, Top Glove gained six sen to RM5.04, Supermax Corporation Bhd added one sen to RM4.18, Latexx Partners Bhd surged 26 sen to RM2.72 and Kossan Rubber Industries Bhd rose three sen to RM3.11.
Even newly listed glovemaker on the ACE Market, Careplus Group Bhd, gained 2.5 sen to 37 sen yesterday.
Share prices of glovemakers had been falling for the past five months due to the bleak outlook of the industry. The Edge Financial Daily had yesterday reported that glovemakers have been coming under very tough operating circumstances of late due to a confluence of several factors which had hit the industry all at once.
The macro picture for glovemakers does not seem to be bright at the moment with high rubber prices which will add to raw material costs for these glove manufacturers.
Malaysian Rubber Glove Manufacturers’ Association (Margma) president KM Lee had said latex makes up some 60% of glove producers’ manufacturing cost.
Other than high rubber prices, glove manufacturers have also been contending with the weakening US dollar against the ringgit which would effectively reduce the overall translated earnings for these glovemakers as their trade is denominated in the greenback.
Normalising demand on high-capacity expansion build-up would also have dire effects on these glovemakers after the end of the H1N1 influenza outbreak which had caused their customers to stack up gloves.
Indeed with all these factors, it would be sensible for rubber glove manufacturers to finally come together in a consolidation to battle against these persistent industry headwinds.
A consolidation exercise of the industry, which The Edge Financial Daily report also predicted, would enable players to obtain better economies of scale and pricing power.
The market will be watching if the American firm’s rumoured intention to acquire Adventa pan outs, and whether it will be the first of other merger and acquisition developments in the sector.
If it does materialises, it will also signal an interest in the sector not only from other rubber glove competitors, but also from the major global healthcare players.
This article appeared in The Edge Financial Daily, December 24, 2010.