Dear fellow readers,
Once
again, these writings are just my humble highlights (not
recommendation), feel free to have some intellectual discourse on this.
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Dear all, apart from Riverstone Holdings Ltd. which I was the earliest to discover and highlight the stock, I have yet to write an article on the glove sector due to a proliferation of articles / reports by research analysts , authors and promoters which made me feel writing another article is redundant. However, given the selldown in glove sector in recent days since Top Glove reported extraordinary results, I would like to share my humble view with all. (A detailed article would follow later on)
When
I first called Riverstone Holdings in 2019, I remembered it was only 90
sens SGD, today it closed $2.31 SGD (high of $2.49). I have not sold a
single share since then. Why did I choose this company? Some may ask, if
I was so good, why did I fail to notice other gloves stocks like the
big 4 and only focused on Riverstone? Bear with me and let me share a
true story.
Luck
was on my side when I was representing a client (US buyer of medical
gloves) during their visit to Malaysia scouting for suppliers. They
wanted Top Glove even before visiting other glove makers thinking
Topglove is number 1. However they later on realised in terms of
quality, Tier 1 nitrile medical gloves were Hartalega, (lesser known)
Riverstone, (non-listed) YTY Group. Through this business dealing, I had
the chance to visit Riverstone manufacturing facility, meet with the
management team. I knew I had to invest after my visit because I was
impressed with their facility and most importantly the management team /
founder philosophy. This was before Covid-19 pandemic.
Shortly after that, I started studying the sector and found :
1. Hartalega -
would always command a premium over the rest (founder Mr Kuan - is an
industry titan / pioneer) with strong balance sheet and state of the art
facility / technology.
2. Top Glove
is the ever expanding, aggressive, high profile number 2 chasing
Hartalega market leader (market cap) position. What made me hesitant was
the huge debts taken to expand - perpetual sukuk. I never liked overly
aggressive business philosophy. However, today Topglove is reaping the
full benefit due to their aggressive growth model.
3. Kossan was
the number 3, steady, expanding with good margin glove player who was
not as aggressive as Topglove but reliable and willing to work hard to
fulfil their OEM client needs whilst carving their own niche is
technical gloves.
4. Supermax was
the OBM player who had fluctuating performance, and margin that was
lower with a less healthy balance sheet. Today, Supermax OBM model is
paying off benefiting from full ASP increase.
When
Covid-19 was still known as Novel Coronavirus in end Jan and before a
full blown pandemic, during a round of golf, a seasoned investor whom I
was having a game with told me to buy Supermax. The price was RM1.70
then. I refused as my biggest reservation was the past political issues
of the founder. Clearly, I was wrong.
Subsequently,
when Riverstone results was out, I knew that this sector is due for
rerating. Then the glove stocks started the run and I was desperately
looking for the next glove stock still a laggard as Big 3 were shooting
through the roof. Luckily, I found Sri Trang Agro (Thailand and
Singapore dual listed) both were still significantly undervalued. I took
a huge position. My subscribers did too and today, all are sitting on
good profits from Riverstone and Sri Trang. We are still holding till
today.
I
wanted to be patient to wait for results earnings before I make a call
which is my style.I couldn't believe how crazy the sector rerated as
retailers, research analysts and promoters were pushing Big 4 and other
lesser known / loss making glove players. To me it has become like a
"Tuilp Mania". But I was wrong when Top Glove released the results last
week. It was off the charts. They were right.
Now fast forward to today, the entire sector appears to be facing sell off due to a variety of reasons. I
won't address it here one by one but will deal with it in a later
article. I will only say this - the gloves sector retracement / selloff
is a godsend opportunity to those who missed the ride. Whoever entered
earlier and is taking profit now, congratulations, you or the fund did
well hence taking profit off the table is good discipline.
BUT,
this is a good opportunity to collect Topglove, Supermax, Kossan and
Hartalega (in order of position) because fundamentally, this will be a
record run never seen in our history and it is a culmination of 30-40
years since the industry was built by the pioneers back when there were
over 300 players competing. What you see today are the reward being
reaped after years of innovation, persistence, competition by these
manufacturers who built their business on solid foundation that even
China manufacturers with their skilled copycat / technology innovation
cannot compete. Malaysia glove sector is an industry that controls 65%
of world market share not by sheer luck or opportunistic play. It is
years of organic growth backed by natural resources, technology
innovation, R&D which has won the trust, certification and global
reputation for the country.
This
is my view and I hope it will clear some of the confusion / anxiety /
worry faced by my fellow investors. Rather than throw your money into
syndicated promoted goreng stocks with poor fundamentals, have a little
faith in our Malaysian industrialist who have toiled and sweat more than
30 years to play a big role in fighting covid-19 global pandemic and
protecting frontliners with their products. Their valuation is more than
justified and I believe this is one of the best opportunities in the
market right now.
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Food for thought:
Telegram channel : https://telegram.me/tradeview101
Website / Blog : http://www.tradeview.my/
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Food for thought:
https://klse.i3investor.com/blogs/tradeview/2020-06-19-story-h1508875515-_Tradeview_2020_Commentaries_on_The_Recent_Glove_Sector_Selldown_Since_.jsp
