It is no surprise that Top Glove has high ambitions as it has been proven in their past records. It is mentioned in the article by EdgeDaily that this largest glove manufacturer is planning to triple its production capacities over the next 15 years while planning to increase its global market share to 50%. Doable? A bit overoptimistic I would think but it is not an impossible task.
I have mentioned in the past that if we want to buy glove manufacturers, one may not need to look beyond Top Glove and Hartalega. My reasoning is simple. In a mature industry which has decent growth, look for company that has size, strong balance sheet, reach and ability to scale. Both Top Glove and Hartalega have that. I am not discounting other players like Supermax, Kossan, Latexx Partners etc. but chances are that the dominance would probably be by the 2 companies. Only thing is that we do not know latex gloves or nitrile gloves would be the preference. The way I look at it industry players themselves do not know as they are preparing production lines that are switchable.
Anyway, over the last 6 months, prices of latex has tapered down as it was over speculated few years ago. At one point of time the price was so high that costs of production for latex gloves was higher than nitrile gloves, an unprecedented event. We will not know the future of these raw material however, but I believe these players would be more ready in future in the event any of the raw material shot up in price again.
With the recent price of raw latex reducing to below RM7 per kg, I am just wondering whether it is time to buy Top Glove again. Prices of these raw material however should not be a consideration for any long term investors. The main concern is the strategy.
Over time, it may not be the prices of latex or petroleum that is to cause concerns to these players but what I am more concern of is whether there can be a glut in terms of supplies as well as the increasing labor costs. Hence, these players will have to convert their plant to embrace automation much more than before as Malaysia and Thailand are introducing minimum wages almost at the same time.
On the concern for glut in supplies of rubber gloves, I am just worried as every time I read about the industry news, these players are preparing themselves for massive expansion. Can the demand be taking so much?
1 comment:
I think that a lot of profit will be reinvested for PP&E purchase. This will suppress the dividend for the next 5 years, I guess. In 5 years time, probably we can find another chance to buy. This is not impossible as the commodity price roller coasting in next few years.
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