New glove players shift sector into defensive mode
KUALA LUMPUR: As new players are entering the glove manufacturing sector, analysts note that glove makers are deemed to still be in their business upcycles as earnings are still expected to grow significantly in the few quarters.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), on top of existing players increasing their capacity, many businesses have announced their intention or plan to enter the glove manufacturing sector.
“It is still difficult to gauge the production capacity that can be achieved by these new players as most of them have not announced full details of their new ventures such as production capacity and product types,” MIDF Research said.
“Ultimately, their production efficiency will also determine what kind of impact they can leave on the industry.
“The incumbents will have a head start due to their longterm relationship with their customers, suppliers, technical know-how and production efficiency.”
The research arm gathered that depending on whether the plans are greenfield or brownfield, gestation period may take up one year to two years and may also vary according to its planned capacity.
“Topping that is the period required to get necessary approvals from the officials in the respective countries they plan to sell to as well as rigorous testing for exports to developed nations.
“As the new entrants are likely to start-off small in the first twoyears of their establishment, they are expected to contribute to less than five per cent of the
It is still difficult to gauge the production capacity that can be achieved by these new players as most of them have not announced full details of their new ventures such as production capacity and product types.
MIDF Research
total production in Malaysia in 2021.”
MIDF Research highlighted that the glove makers are deemed to still be in their business upcycles as earnings are still expected to grow significantly in the few quarters.
Looking beyond the near-term surge in profits, the research arm expected that growth will be driven by organic growth in demand due to higher hygiene awareness, production capacity, product innovation and improvement in production processes.
“This is also likely to be supported by higher allocation in budget for personal protection equipment by government agencies and health departments.
“Once the growth in ASPs tapers off, the profitability of the companies will shi back to the production efficiency and cost management.”
As such, MIDF Research now used longer term price earnings ratio (PER) valuation as the research arm believed that even a er the upcycle that the glove industry is facing this year and next year, demand for gloves will remain resilient as an effective protection against infectious diseases and also due to the increase in hygiene awareness.