Frankly Speaking: Glove temptation

This article first appeared in The Edge Malaysia Weekly, on February 15, 2021 - February 21, 2021.
Frankly Speaking: Glove temptation
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The normalisation of glove stocks’ valuations does not appear to be hindering ventures into the industry.

Local players are continuing to pursue their interest in glove manufacturing. Steel products manufacturer Eonmetall Group Bhd is the new kid on the block. It has proposed to acquire a controlling 51% stake in Lienteh Technology Sdn Bhd and the business diversification plan is expected to contribute at least 25% to the company’s profits in the future.

Although the deal comes with a profit guarantee — a collective net profit of no less than RM100 million for the financial years ending Dec 31, 2021 (FY2021), and FY2022 — Lienteh Technology has not really commenced its glove operation as the necessary approvals from the authorities are still pending.

Many small players have been crowding into the glove market, but only time will tell which are the genuine players. They will be closely monitored in the next few months. Even if the plans materialise, will the earnings contribution and profit margins come in as expected and will high average selling prices for gloves be sustained until the second half of the year?

With the vaccination programmes now underway globally, the risk of easing glove demand is increasing, which could lead to oversupply in the coming years. Has this risk been factored in?

While efforts by pandemic-hit companies to look for new business opportunities should be lauded, the worry is that some may use such announcements to prop up their share prices. As such,  it is important for investors to make informed investment decisions to avoid getting burnt.

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