Boom to bust

ON hindsight, investors and local glove makers must have mixed view about the Covid-19 pandemic now.

Prepandemic, companies like Top Glove Corp Bhd, Supermax Corp Bhd and Hartalega Holdings Bhd have helped Malaysia became a global leader in the supply of rubber gloves with some 70% market share.

They made decent profits on expanding capacity to meet growing demand while Top Glove and Hartalega became components of the FBM KLCI with institutional following.

The early phase of the pandemic heralded a golden age for the industry.

Panic demand translated into abnormal profits and saw glove makers share prices peak from August to October 2020 with Top Glove’s market capitalisation at one point second to Malayan Banking Bhd.

New entrants came into the business thinking the party would not end but the subsequent rollout of vaccines and transition to endemicity has pretty much ensured we will likely not see the mountain top again.

The 180 degree turn in fortunes was completed when the pandemic impact finally hit home with infections of workers and market access curtailed on issues of forced labour.

Despite being the global leaders in the industry, the forced labour issue in some way exposed the mindset of local producers still was like a “jaguh kampung” when they could and should have used their scale to set standards that would have become the international benchmark for the industry.

Top Glove’s fourth-quarter net loss of Rm52.6mil on Tuesday suggests that investors should be ready to hold with a long-term view despite the stock’s price being at seven-year lows.

Pressures for consolidation is building and cash is king.

An industry source says the situation is quite dire for new entrants without established anchor customers.

One such Kulim-based manufacturer’s buyer did not take delivery of orders that were verbally agreed upon without a purchase order issued.

The glove producer has started to down size and lay off workers.

Chinese producers are chipping away at the market share but local producers should be able to hold their ground based on quality and scale but at the expense of margins.

Analysts also remain downbeat on the sector with earnings visibility likely to be hampered further by the rising natural gas prices from October. With buyers holdings high stock levels and demand from end users weaker, the road to recovery or normalcy is set to be a long one.