Can rubber glove newcomers still get a slice of the pandemic-driven super profits?

Can rubber glove newcomers still get a slice of the pandemic-driven super profits?
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KUALA LUMPUR (Oct 12): Since the middle of 2020, there has been a slew of companies diversifying into rubber glove manufacturing, especially after the surge in the share prices of the big four players in August last year, as they saw supernormal profits amid the peak of the Covid-19 pandemic.

But with increased capacities coming on stream from existing and new players, and as economies reopen while countries prepare for the pandemic to enter its endemic phase, the question that comes to mind is whether these companies will be able to see significant contributions from their new ventures.

Announcements of their new rubber glove ventures — be it via the acquisition of existing players, setting up their own facilities, or joint ventures — sparked hot interest among investors at the time, who wasted no time piling into their shares in hopes these companies would get a piece of the huge profits pie.

However, as vaccination rates increase around the world, the urgency of demand for rubber gloves has slowed down compared to the earlier phase of the pandemic, with more established players already seeing the normalisation of their bottom lines, as the average selling prices of gloves moderate.

In fact, Rubberex Corp (M) Bhd, which announced a diversification into property investment recently, has pointed out the waning outlook of the rubber glove industry, and that profits and average selling prices (ASPs) have already peaked.

In the mean time, many new entrants are either still in the midst of setting up their rubber glove manufacturing lines or have only recently commenced operations and have yet to see significant contributions from their new businesses.

Some notable new entrants

One of the earliest companies to announce a diversification into the segment following the Covid-19 outbreak was AT Systematization Bhd, announcing its venture back in June 2020, as it planned to capitalise on the demand for medical gloves.

At the peak of the glove mania in August 2020, the then loss-making precision engineering and industrial automation firm announced it would commission six glove dipping lines for its new factory.

The group has since returned to the black, although its earnings have been trending downwards in recent quarters.

AT posted a net profit of RM124,000 for the first quarter ended June 30, 2021, largely due to its glove segment, which mitigated the losses from its fabrication and automation segment, down from RM1.8 million reported in the preceding quarter.

The counter, which was trading as high as 27 sen on Nov 11, 2020, has since dropped 78% to six sen as of Oct 11.

Besides AT, other new entrants that have seen positive contributions from their glove operations are those that had either opted to acquire an existing glove maker, or those that have added a rubber glove trading business.

Among them were Vizione Holdings Bhd, LKL International Bhd, Notion VTec Bhd, Salcon Bhd and Luster Industries Bhd.

Vizione’s healthcare division accounted for 13% of its revenue for the quarter ended May 31, 2021, while Salcon’s healthcare segment posted a pre-tax profit of RM12.99 million for the second quarter ended June 30, 2021.

Notion VTec’s personal protective equipment or PPE segment contributed 24% to its revenue for the third quarter ended June 30, 2021, while Luster’s glove and healthcare segment made up 5.4% of its total revenue for the six months ended June 30, 2021.

Most others, however, have yet to see any contributions from their rubber glove operations.

Mah Sing Holdings Bhd, for example, has yet to record contributions from its venture during its second quarter ended June 30, 2021. In fact, it recorded pre-operating losses for the segment.

Nevertheless, the group previously announced it has secured glove orders for up to September 2021, priced at up to US$115 per 1,000 pieces, for buyers in countries like US, China, Japan, Korea, as well as countries in the Middle East.

Its share price spiked to RM1.24 in October last year, a week after it announced its rubber glove plan. Since then, Mah Sing has fallen 41% to its closing price of 72 sen on Oct 11.

Similarly, many have enjoyed a surge in their company share price to multi-year highs, based solely on the news that they would be adding rubber glove making to their operations.

Bamboo flooring manufacturer Kanger International Bhd touched a two-year high of 31 sen on Sept 22, 2020, despite there being no updates on its venture since it announced its new venture in August that year.

IT outfit Inix Technologies Bhd, which rose to 81.5 sen in August 2020 — its highest since September 2006 — has since slumped to 11 sen as at Oct 11. Its rubber glove segment posted a profit of RM748,000 for the three months ended June 30, 2021, but the group remained in the red with a total net loss of RM4.82 million.

Fintec Global Bhd — which touched a two-year high of 18 sen in September 2020 amid a proposal to diversify into the rubber glove segment, which also has yet to contribute to its earnings as at June 30, 2021 — closed at 1.5 sen on Monday, a 91% drop.

It remains to be seen whether these companies will be able to reap the fruits of their rubber glove venture investments, especially as the bigger players are already seeing a normalisation in profits, as the pandemic gradually moves into the endemic phase around the world.

Tan Choe Choe