Dear fellow readers,
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It
has come to our attention that a viral news on windfall tax research on
Glove Sectors specifically on Top Glove, Hartalega & Kossan was
among the key reason for today's massive selloff for glove and related
stocks. This is an old recycled topic that was raised back on 5th June
2020 by Public Bank Research. It is no wonder that retail investors
remains skeptical and doubtful of the Investment Banks. It begs the
question as to its true intention as well as professionalism in writing
such reports. Whilst it is necessary to highlight the positive as well
as the risk of a particular stock under coverage, it is bordering on
immorality when the same IB recycles an old theme / topic out of the
blue to just to fill in the the content of the report and plant seeds
into policy makers mind to move forward a sinister agenda - which is imposing Windfall Tax on the Gloves Sector.
The
Glove Sector remains the one few bright spot in our economy that is
putting Malaysia on Global Stage, building up international reputation,
diplomacy and at the forefront of savings lives in the battle against
Covid-19. I have repeatedly address this issue back in June during the
selloff whereby Public Bank mentioned that due to lack of government
coffers, there is a risk of windfall tax. Since Maybank IB Research has
chosen to reopen this topic unnecessarily, I shall take the liberty as
an independent financial writer to counter this shenanigans point by
point.
Indeed,
sin industries such as gaming, tobacco, alcohol which are traditionally
targeted by the Government with additional taxes are understandable due
to the high profit margin, social issues which requires some level of
deterrent. However, these industries have suffered due to Covid-19 and
lockdown. Oil & Gas and many others that contributes to the
Government budget is affected as well. Hence, the only sector that
appears to be bucking the trend is the glove manufacturers, PPE and tech
related sectors. Does this mean they should be an easy target for the
Government to imposed these taxes? I am of the view that it would
be unconscionable and morally wrong to impose windfall tax on this
sector because the sector is playing a huge role in contributing towards
protecting frontliners and fighting the pandemic. With the world still
facing shortage and Malaysia being the number 1 producer controlling 65%
of market share of gloves (Thailand is second), Malaysia as a country
has responsibility to be a global citizen and not stifle the industry
with windfall taxes.
In
addition, the industry requires more encouragement, government
incentives & support to fill the void in the world's market for
gloves, medical supply and PPE shortage. Government around the world are
giving incentive to support this industry like US, China not otherwise.
The glove manufacturers contribute significantly to the FOREX of the
country with more than 90% of their products being exported. With a
record trade deficit for April (worse since 1997), it should not be in
the playbook for the Government to impose measures which would otherwise
discourage exports. Furthermore, unlike the Palm Oil industry which
receives a lot of subsidy and support by Government, the glove sector
was build up almost entirely by entrepreneurs in an utmost competitive
environment without much help or subsidy. Malaysia used to have close to 300 glove factories in 1980-90s, today there is only 40 world class players left.
This is because traditionally, Gloves are low margin products which
relied on the latex / rubber industry. Thanks to R&D of Nitrile
gloves as well as continuous automation and improvement by Glove
players, the sector grew exponentially with the ability to meet
international standards, certification and safety regulations globally.
The reason why Malaysia glove sector is strong is because of the talents
behind these companies.
Just
because the gloves sectors are like chicken laying golden eggs now,
doesnt mean you should justify killing the chicken. It is my humble view
that this windfall tax on glove sector by Maybank IB Research was
unnecessary, unjustified and in no way beneficial to anyone. If
indeed the Government do take any measures resulting in weakness or fall
in share price of glove makers / PPE makers, it would be a good
opportunity to collect on weakness.
Why?
Because the Glove manufacturers in Malaysia has overcome way more
adversity to remain standing. Malaysia do not become world leader and
king of gloves overnight. It is the blood, sweat and tears of this
enterprising individuals over the span of 30-40 years.
The
good old saying goes by, if you have nothing nice to say, remain
silent. Do not write a report for the sake of writing just to fulfill
your annual KPI or department's milestone. It is not in anyone's
interest but your own. As for retailers and investors who are still
invested in the Glove sector, have faith in your holdings. These
companies, fundamentally is sound, of value and have earnings visibility
ahead for at least another 1-2 years.
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Food for thought:
http://www.tradeview.my/2020/08/tradeview-commentaries-17th-august-2020.html
