Koon Yew Yin 20 April 2021
Many a time I awas tempted to buy glove stocks because I expect all the glove makers will report increased profit in the next quarter. But after careful research, I have decided to write this article to forewarn investors.
The price of medical glove has been shooting up higher and higher since the start of the Covid 19 pandemic in early 2020. As a result, all the existing glove manufacturers have been expanding their production to make more and more profit. In fact, many companies which are not in the glove business also diversified to make gloves.
I know the names of some of the new glove makers in Malaysia namely
1 At Glove
2 Mah Sing Healthcare
3 AXG
4 Leader Steel
5 Rimba Gloves
6 HLT Global
7 Kanger Tech
8 CE Technology
9 Inix Technology
10 23 Gloves Johore
11 Luster Industry
Although I do not know the names of glove makers from China, but I can imagine how quickly the Chinese Entrepreneurs would have taken advantage of this profitable opportunity.
The US is our biggest glove market. The US Government has provided many incentives for glove manufacture in US because they do not want to depend on imported gloves.
Supermax has increased additional production lines in all its existing factories and started to construct new factories in Canada.
Top Glove also has expanded its production lines in all its existing factors and started to construct new factories.
The European Union has provided large sum of money for the Covid 19 pandemic prevention and low interest loan to encourage investors to start glove factories in Europe.
Due to massive vaccination, the number of new Covid 19 cases is gradually being reduced. As a result, the demand for medical gloves is also being reduced gradually.
Based on the above factors, I wish to point out that the average selling glove price will continue to drop due to oversupply. As a result, all the glove makers will not have profit growth any more.
Investors must remember that among all the stock selection criteria such as NTA, Cashflow, PE ratio, dividend yield, debt or healthy balance sheet, etc, the most powerful catalyst to move share price is profit growth prospect. Never buy any stock that has no good profit growth. Never buy any stock if it cannot report increased profit in the next quarter.
The above is Supermax price chart which is showing down trend. Investors must never buy down trending stock. I should have sold my holding of Supermax as soon as it started to drop. I delayed and I learned an expensive lesson.
http://koonyewyin.com/2021/04/21/glove-supply-exceeds-demand/
