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Fellow
readers who follow my articles would by now know I am a strong believer
in the Glove sector and absolutely find the investment thesis for Glove
stocks attractive even at this juncture. The recent end
August-September sell off (the longest sell off and recovery, almost 6
weeks to return to earlier levels) was like a lightning bolt that jolt
investors and the market. It was swift, strong and scary. I believe most
retail investors would have either panic sell or seek to pray to
almighty for some reprise.
This
was made worst by the naysayers reports, comments on media and string
of news cycle that punished the glove stocks further. The apparent "nail
on the coffin" was when a major local fund sold down the stock
desperately for income recognition purposes. In my prudent estimation, I
think billions worth of glove stocks was sold off by this major local
fund alone in that duration. I may be wrong on the figures but ready to
be corrected if proven otherwise.
If
not for the massive corporate share buy backs from Top Glove, Supermax
and insider buy backs by Hartalega, Kossan and Riverstone, I believe
investors' confidence would be further eroded. Then came EPF charging
with guns blazing across all Glove stocks even UG Healthcare (Sg Listed)
becoming substantial shareholders in most which was a true sign of
confidence to the market. We must also note that President Trump who was
infected by Covid-19 further heightened the awareness of this
frightening pandemic where the most powerful leader of the free world is
not spared. Then our own local Covid-19 second wave begun which started
emptying malls and keeping people indoors again. The culmination of
factors led to a strong rebound in the sector for the past week.
This
series of events led to a very obvious conclusion - many retailers,
investors, authors, professional managers are driven by sentiments
rather than facts / objectivity in their investment decisions or
opinions. The innate nature of man is to seek solace and comfort in
consensus. A simpler word - herd mentality, following the flow. Few and
far between can take a contrarian view and act on it. And this is why
majority of the people loses money when investing. If you can overcome
this - you will be the minority that makes great investment decisions.
Looking
back at all my articles, commentaries on my blog and telegram channel,
you all can see every time the market sells off, I would write profusely
in a bid to highlight to readers to remain calm, steady and take this
opportunity to buy on weakness. When that feeling in your gut is at its
max, that is the best time to buy. I for one knows it is very hard to
execute. It took me years to do it and up until today, both myself and
my subscribers are learning to adapt to new situations everyday. During
this recent selloff and with the market rebounding, we are seeing the
value of patience, objectivity and staying calm being rewarded.
So
why am I confident with the glove sector? I am not sure how many
investors or professional managers have personally done a site visit
with management of a glove company. I am fortunate to be able to do it
multiple times over the course of past 1 year. As an outsider of the
industry, I would describe well run glove companies are like classic
watchmakers such as Rolex, Patek or Audemars Piguet. The function of a
watch is to tell time. Simple purpose. But the process and machineries
behind is a culmination of years of R&D, design and precision
engineering.
Glove
is the same right? Its just something you wear on the hand. Simple. But
each process of glove making from the boilers, dipping lines,
packaging, testing, delivery have to be seamless and precise. Especially
now, with constrained capacity and factories running at close to 100%
operational capacity, the margin of error is so small that any slightest
mistake would be immensely costly. Why is Rolex sports model selling at
crazy price in the second hand / grey market? It is so ridiculous to a
point that when you buy select models from a official retail store, the
moment you walk out, the watch doubles in value. Think Submariner,
Nautilus, Royal Oak and those in the same class.
The reasoning for Rolex sports model watches being in demand is really quite simple :
Demand has risen due to rising class of affluence, social media and appreciation for the finer things in life.
Supply
on the other hand is constrained. Rumours are Rolex only manufactures 1
million watches per annum and of these only a small allocations are
sports model watches.
Hence,
when demand far outpaces supply met with constrained supply capacity,
the price will just keep on rising. Even if it hits a plateau, it will
remain elevated provided demand tapers or supply rises. Rolex keeps
supply tight.
Now apply the same reasoning for Rolex sports model watches to Nitrile Gloves :
Demand has risen due to unprecedented pandemic sweeping across the globe for a prolonged period of time (almost 1 year now)
Supply
on the other hand is constrained. Medically certified grade or FDA
approved Nitrile Gloves are wildly in demand compared to Latex, Vinyl
and others.
Hence,
when demand far outpaces supply met with constrained supply capacity,
the price will just keep on rising. Even if it hits a plateau, it will
remain elevated provided demand tapers or supply rises.
Just
like watches, there are many brands and tier 1 brands are Patek, AP and
Rolex. Some would argue Vacheron Constantin, A. Lange Sohne should
belong up there too. Then of course you have your other brands like IWC,
Breitling, Hublot, Panerai etc. (Note that I am excluding Richard Mille
and the likes as those are out of the norm.) For Gloves, especially
Nitrile Gloves, the Tier 1 gloves manufacturers are Hartalega,
Riverstone and YTY. Therefore, like how Swiss watches commands the
respect of the world buyers, when it comes to gloves especially Nitrile
Gloves, Malaysia's glove makers have the same status as Swiss
watchmakers.
These
Glove makers have proven time and again they deserve to be where they
are today. Ignore the noises, stay objective and take this opportunity
of a lifetime to make a great investment decision where most investors
in the world do not have the same access.
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Food for thought:
https://www.tradeview.my/2020/10/tradeview-2020-malaysias-gloves-are.html
