Shares of Hartalega, listed in April at RM1.80 offer price, soars to RM5
By PAULINE NG
IN KUALA LUMPUR
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GROWING international demand, projected at 140 billion pieces this year, are helping Malaysia's glove makers defy the global economic downturn.
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| Thriving: Glove makers are operating around the clock to cope with increased global orders |
Industry growth has been between 8 and 10 per cent in the past decade, but with the emergence of new diseases such as H1N1, demand usually spikes by 12-13 per cent.
Malaysia's glove makers are operating around the clock trying to cope with the increased orders.
The executive chairman of Hartalega Holdings Kuan Kam Hon says every single glove is sold even before it comes off the production line.
He ought to be delighted in the stepped-up demand for rubber and nitrile gloves, but he says he prefers a more comfortable inventory buffer of 30 days rather than the 20 at present.
Even so, Mr Kuan concedes Hartalega is not in a position to fulfil clients' urgent requests for an extra container, recent production line speed adjustments which have increased productivity by 3 per cent notwithstanding.
As the world's largest glove supplier in the world accounting for 60-65 per cent of the market, Malaysian glove makers have found greater glove usage - especially in developing countries such as China - a welcome challenge amidst the global economic downturn.
The medical sector accounts for up to 90 per cent of the projected demand of 140 billion pieces this year with the remainder from the automotive, food and semi-conductor industries.
Where other sectors are in the doldrums, glove companies have outperformed. Earnings have been boosted across the board. In Hartalega's case its profit doubled in its first quarter to end June to RM26.4 million (S$10.8 million) from a year ago. Sales meanwhile rose to RM125.4 million from RM87.8 million previously.
The country's largest nitrile glove maker was one of 10 companies that decided to list last year despite gloomy market conditions.
Despite the recession, it posted a profit of RM84 million on sales of RM443 million for its fiscal year ended March.
Its performance hasn't escaped the notice of investors; since its listing in April when it had offered its shares at RM1.80 apiece, its share price has shot up to around RM5.00, marking it as the most successful initial public offering of 2008.
Indeed, Mr Kuan described yesterday's annual shareholder meeting of the country's smallest listed glove-maker - it has 33 production lines versus the largest Top Glove Corporation at 355 lines - as 'very friendly and informal' and conducted with great bonhomie.
Naturally, analysts are overweight on the sector although a recent run-up in the share prices of glove makers means most of them are already fully valued.
According to Mr Kuan, nitrile gloves, and not rubber, are the way forward.
Nitrile gloves are rapidly gaining market share because they do not contain protein and yet cost about the same as natural rubber gloves, he said, adding it now supplies 20-30 per cent of nitrile gloves in the US healthcare market.
According to Mr Kuan, raw material costs are another advantage. Made from a petroleum by-product, nitrile costs have increased by 8 per cent since January versus latex price increases of 39 per cent.
Even so, the heightened demand for gloves has been a win-win proposition. Glove makers say their customers have been understanding about commodity price increases and accepted a gradual pass on of costs.
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