REASONS WHY GLOVE SHARE PRICES WILL RISE AND RISE THROUGH 2021 AND BEYOND
It confounds me that despite the exponential quarterly growth in profits, the share prices of glove counters have been going down in recent weeks. Two main reasons given by the clever people in the investment community are: 1) vaccine will stop the pandemic and this coupled with 2) the expected adding of new capacities will cause ASPs of gloves to decline. For me such views lack business insight and wisdom and have no scientific basis.
Let me share my views on the prospects of glove counters, especially the Big Four (Top Glove, Supermax, Hartalega and Kossan) based on my extensive reading of published information and business logic.
VACCINE / PANDEMIC
Although multiple vaccines are being developed and a few have been approved, the world, unfortunately, will not be able to eliminate the covid-19 virus and the pandemic. Through varying peaks and troughs, the covid-19 virus will be with us for a very long time. From my extensive readings, here are my reasons:
Vaccines normally take many years of trial before they are approved for widespread use. The development of the covid-19 vaccines have been rushed through and the trial period compressed because of the seriousness of the pandemic. Already some side effects have been detected for the approved Pfizer vaccine and in all probability many more side effects will surface as more people are vaccinated. This will increase the negative perception of vaccines and increase resistance to vaccination.
Vaccine rarely protect 100% of recipients and there is no long term protection. Moreover, the vaccines being developed also do not prevent infection and onward transmission.
The flu vaccines, which have been around for many years, have not been able to prevent the recurrence of flu every winter season. Covid-19 is far more virulent and contagious than the ordinary flu virus and will be enormously more difficult to contain and pacify.
To stop the pandemic, we need 70% to 80% of the population to be immunised to achieve herd immunity. Apart from the logistical difficulties and disinformation, people are naturally selfish and fearful of the unknown (especially the side effects). As a result, herd immunity may never be attained.
Moreover, experts often say, for the covid-19 virus, that no one is safe unless everyone is safe.
DEMAND / NEW CAPACITIES
The uneducated investor thinks that as more new capacities are added, the ASP of gloves will automatically decline. This of course is not necessarily true. The theory of demand and supply requires supply to exceed demand for prices to drop and the drop will be to an equilibrium price, which many experts have said will be higher than the historical prices. At this point in time, there is a still a huge shortage of gloves in the market and it is not certain how big the added capacity will be and whether the increased supply will surpass demand.
Announcements of new investments in capacities do not have to equate to an increase in supply. The manufacturers of the nitrile butadiene raw material are reported to have reached maximum production capacity pand it takes a minimum of 18 months to build a new plant. There will not be enough raw materials for new entrants to the market till 2022. As for natural latex, it will take a much longer time for increased supply to come into the market.
The Big Four manufacturers have strong competitive advantages in reputation, technology, quality, efficiency, economies of scale and market networks. As such they will be able to command premium prices for their products and higher margins, even with new players entering the market.
New entrants, like property developer Mahsing, will take a long time to move up the experience curve and will hence not be able to compete in quality and market acceptance with the Big Four.
As there is now a shortage, the need to restock and the heightened consciousness for health and hygiene mean that Big Four will be able to enjoy super-normal profits beyond 2021 and continued growth through future years.
CONCLUSION
Even with the approval of vaccines, the pandemic will likely remain at elevated levels in 2021. And as long as the covid-19 virus is not eliminated, demand for gloves will not decline.
Because of the shortage of the nitrile butadiene raw material, supply will not exceed demand in the foreseeable 2 years
If vaccination is unable to reach 70% to 80% of populations by the end of next year or if covid-19 cases do not decline significantly by the middle of 2021, share prices of glove counters, especially the Big Four, will shoot to stratospheric levels. Based on the reasons given above, this scenario is very like to prevail.
And who knows, should the covid-19 pandemic abate in a few years, a new pandemic may appear.
Invest in glove shares now. The best is yet to come!!
Disclaimer : This article is purely for the purpose of information and opinion sharing. You should not make your investment decision based on it and you are strongly recommended to seek independent verification and advice.
godhand talk so much c0ck no use bring out proof that asp will sustain. it has just dropped from its peak from usd8. i know because im a broker
10/12/2020 4:55 PM
Mtrade Lol broker is just like my dog u know? Which bank u from?
10/12/2020 5:41 PM
godhand im a glove broker. good luck
10/12/2020 5:43 PM
Mtrade Top Glove Corp Bhd expects the average selling price of its gloves to jump 30% in the second quarter ending Feb 28, 2021 (2QFY21). Read it broker and then think yourself. How can asp drop when supply is catching up with demand??????? You gonna be broker for the rest of your life if u have this kind of mindset.
10/12/2020 5:44 PM
Mtrade Glove broker i know why you are mad now hahahahahaha. Why? ASP so high that u cant get good commission is it. Glove Producer turned u down is it
10/12/2020 5:46 PM
haridassa Thai girl broker I guess ha ha ha.
https://klse.i3investor.com/blogs/Newroc/2020-12-10-story-h1537509567-REASONS_WHY_GLOVE_SHARE_PRICES_WILL_RISE_AND_RISE_THROUGH_2021_AND_BEYO.jsp
