Telling it ‘as it is’
GLOVE manufacturers and providers of personal hygiene and healthcare products are prime beneficiaries of the Covid-19 pandemic.
Glove producers are enjoying a euphoric run on expectations that their profits would double in the current year of operations. This is due to an increase in demand, higher average selling prices and low raw material cost.
Valuations of glove companies have sky-rocketed even though the first quarter results of some companies do not seem to suggest a significant jump increase in profits.
As for companies that manufacture and distribute healthcare and its related products, the share prices have been going up on expectations of higher sales and better profit margins due to supply related issues. Normally, the companies are hardly noticed by investors as their earnings are stable and margins predictable.
However, due to the pandemic and hype surrounding Covid-19, the performance companies manufacturing and distributing healthcare and personal hygiene products warrant some scrutiny to determine if their revenues and profits will grow, as expected.
Among the beneficiaries is Apex Healthcare Bhd, a company that manufactures, distributes and markets pharmaceutical products in Malaysia and Singapore. Its operations were not affected during the restrictions of movements in Malaysia and Singapore. Operations went on as scheduled but with reduced manpower.
Apex Healthcare’s top line and profit numbers in the first quarter for the months of January to end March improved as expected, due to the higher demand.
However, the company stated in the notes accompanying the accounts, that it did not expect the demand to sustain. Among the reasons it cities for demand not being sustainable are that there are growing uncertainties on supply chain integrity, workforce restrictions, social distancing, volatility of raw material prices and collection of trade receivables.
Apex Healthcare is one of the few companies to come up with sensible assessment of the sudden spike in demand for healthcare products.
The underlying economic fundamentals are unpredictable. How many companies will survive and how many will be out of a job is uncertain.
So how will demand for healthcare products, which is not an essential item, be sustained? Moreover, the chances of a vaccine being found seems a possibility that can happen sooner than later.