Published July 15, 2009

M'sian glove makers eye growth

Analysts overweight on the sector, whose only dampener is shortage of workers

By PAULINE NG
IN KUALA LUMPUR

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RISING hygiene standards - made more urgent by the current swine flu crisis - have made obviously rubber glove makers the winners, despite the current market pull-back.

A fistful of opportunities: Glove makers are anticipating a flood of orders given that more and more cases of swine flu are being recorded every day

Most analysts are overweight on the sector, one observing in a report last week that the sector provides 'a fistful of opportunities'.

The only dampener at the moment is a pressing shortage of workers. The Malaysian Rubber Glove Manufacturers' Association (MRGMA) has urged government authorities to expedite the approval of foreign workers so that orders can be quickly filled.

The average delivery lead time of one month has now been stretched to between two and three months, association president KM Lee said in a statement on Monday. Glove makers are anticipating a flood of orders given that more and more cases of swine flu are being recorded every day.

Yesterday, the World Health Organisation acknowledged that the new H1N1 virus is 'unstoppable'.

Analysts said that local glove manufacturers are set to capitalise on the growth, given that the country is the world's largest exporter of rubber gloves.

Malaysia controls some 65 per cent of the global market and expects exports to reach RM7.5 billion (S$3 billion) this year.

According to Maybank-IB projections, the sector could expand at 5-8 per cent over the next five years with natural rubber and nitrile gloves, which account for a total of 90 per cent of the global market, the key growth areas.

Its analyst Wong Chew Hann said that she sees demand being largely driven by the following: rising hygiene standards in Latin America, Asia and Eastern Europe; the increase in outsourcing by major medical companies; rising populations and improved economic conditions; and more frequent infectious outbreaks.

Indeed, demand might have eased a bit after the onset of the global financial crisis, but it was more than off-set by lower oil and latex prices and a weaker currency.

Rising sales have since ensured improved earnings. In its third quarter to end May 2009, the country's biggest player, Top Glove Corporation, posted a 62 per cent jump in profit year-on-year to slightly over RM42 million.

Other glove makers also saw heftier returns: Hartalega Holdings' earnings in the last quarter to end May rose to RM31 million versus about RM9 million a year ago, while Supermax's profit in the second quarter to end June almost doubled to RM26 million from RM13.5 million.

In the past weeks, share prices have jumped sharply, pushing valuations up.

Even so, Maybank-IB's Ms Wong thought that the local firms have obvious advantages over their regional peers.

They can leverage their competitive efficiency and economies of scale, technology innovation, sound track records and financials as well as good manufacturing practices to drive down unit costs should competition intensify, she said.

For glove makers, the main concern now is getting more workers to ramp up production. MRGMA's Mr Lee said that it would be a pity if customers had to be turned away to the advantage of other glove manufacturers in neighbouring countries.