Enviro-Hub gears up for bigger recycling capacity in tandem with glove making venture

Going forward, the group will be focusing on two main business segments: recycling of e-waste and the supply of healthcare products.

The group’s recycling segment collects most of the e-waste from large MNCs with electronics manufacturing, who require equipment such as gloves and personal protective equipment (PPE) in their manufacturing process.

In 2021, Enviro-Hub diversified into the healthcare business, with its investment in Malaysian glove manufacturer Pastel Glove marking the group’s foray into the glove manufacturing and healthcare consumables sectors. With the acquisition of Pastel Gloves, the group has plans to expand its product range to include PPE and sees significant cross-selling potential across the business segments.

2. The group recently acquired Pastel Gloves. Could you elaborate on the rationale and future plans for the segment?

Pastel Gloves is a glove manufacturing entity and is part of the group’s expansion plans to venture into the broader market of supplying healthcare products. Management expects the venture to: provide additional and recurring revenue streams to the group; tap into sustained demand for healthcare products (including rubber gloves); and create revenue synergies with our existing recycling business.

In the first phase of expansion, Pastel Gloves has two production lines with a total production capacity of 450 million–500 million gloves per year and is running near full utilisation. The remaining four production lines with a total production capacity of 920 million–970 million gloves per year are expected to be completed by 4Q2021. Pastel Gloves is in the midst of identifying land for its next phase of manufacturing capacity expansion.

Pastel Gloves’ target product mix includes: 70% specialty gloves, 20% nitrile gloves and 10% latex gloves. Specialty gloves (for example, healthcare gloves with specific weight and black-coloured gloves, which are commonly used in the F&B, tattoo and law enforcement industries) tend to carry higher margins than normal nitrile gloves.

3. Who are some of your competitors? What differentiates Enviro-Hub from them?

Enviro-Hub’s competitors include:

• Glove manufacturers (for example, Top Glove Corp, Hartalega Holdings, Kossan Rubber Industries and Riverstone Holdings).
• E-waste recycling service providers. Despite the fragmented market, we have identified only five players (mostly privately held entities) of a similar scale to Enviro-Hub in Singapore, who typically compete for big scale e-waste recycling projects.

Pastel Glove is led by industry veterans Law Siau Woei and Choo Kuan Ping who have over 20 years of experience in the industry. Law developed the Black Dragon examination gloves (subsequently acquired by Microflex Corp in 2010), which is recognised as the pioneer in high-quality disposable black latex examination gloves in the tattoo, medical and law enforcement industries.

Going forward, the group will continue to tap on the founders’ deep expertise to target specialty gloves, which typically command higher margins (between 10% and 15% higher) and have less competition compared to normal gloves.

Pastel Glove has also received US FDA 510(k) clearance to market nitrile medical-grade gloves in the US, expanding its geographical reach.

4. Does the company have a dividend policy?

Enviro-Hub does not have a dividend policy for now as the group is in the early stages of investing for growth and would like to reserve capital to execute its expansion plans. The group will look at establishing a dividend policy to reward shareholders once it has built up stable income and cash flow streams.

5. What notable developments can shareholders expect from Enviro-Hub in the near future?

In addition to gloves, the group is also looking to expand across the supply chain of healthcare supplies, through acquisitions or organic growth. To cope with the rising demand for e-waste recycling, the group is looking to increase current processing capacity from 3,600 tonnes per year to 5,100 tonnes per year by the end 2021.

6. How would the acquisition of the gloves business contribute to the group’s top line in the future?

The group proposed to acquire the remaining 75% stake in Pastel Glove (current stake at 25%) in May 2021. Under the term sheet, there is a profit guarantee of US$18 million ($24.62 million) over the next three years by the original founders of Pastel Gloves. With the guarantee, management expects strong earnings growth for Enviro-Hub in the next few years, supported by the underlying demand for healthcare gloves amid the pandemic.

7. The group announced the potential disposal of the property investment and piling & construction business segments. Could you elaborate on the rationale and future direction of growth?

The group is in the midst of streamlining our business segments to free up resources and focus on higher growth segments (i.e. supply of healthcare products and recycling).

Management expects that the disposal of assets will significantly improve the group’s balance sheet strength and move the group to a relatively asset-light model. This will also allow the group to channel resources to businesses with higher return on assets (ROA), such as the supply of healthcare products.

8. What is the growth outlook for the glove industry? How would these trends benefit the group?

According to the Malaysian Rubber Gloves Manufacturers Association (MARGMA), global demand for gloves in 2021 is expected to grow to 420 billion pieces, with demand expected to remain robust until 2Q2022 with the potential to last into 2023.

While average selling prices (ASP) of gloves are expected to drop due to rising supply and acceleration in vaccination campaigns, selling prices are expected to remain elevated as compared to pre-Covid-19. As such, we expect manufacturers to maintain healthy profit margins.

In the long run, we believe that the decline in ASP may be healthy for the industry by eliminating speculative addition in supply capacity by opportunistic players. This may also give rise to potential acquisition opportunities for Enviro-Hub, who has been mindful in our capacity expansion, and is focusing on specialty gloves. We are of the view that specialty gloves have higher barriers to entry (due to requirements in R&D) and have higher margins.

9. How do you ensure the health and safety of your workers in the glove factories?

In line with the regulations imposed by Malaysian authorities, the group’s glove factories are operating at 80% manpower capacity to ensure sufficient safe distancing. The group conducts periodic Covid-19 screening to ensure the prompt detection of any possible infection cases, has been constantly sanitising our factories and ensures all our staff follows standard operating procedure. The reduction of manpower capacity is not expected to have any material effect on the group’s ability to fulfill contractual obligations.

10.Why should investors take a closer look at Enviro-Hub?

Enviro-Hub has announced a series of corporate activities to restructure and optimise capital. This includes the disposal of some of our properties to focus on the supply of healthcare products and recycling of e-waste, moving the group to a relatively asset lighter position.

With our proposed acquisition of the remaining 75% stake in Pastel Glove, the group’s earnings is expected to improve in the near term driven by heightened demand for gloves (supported by a profit guarantee of US$18 million), potential M&A activities, and revenue synergies from the supply of healthcare products and recycling of e-waste segments.

As a show of confidence in the group’s prospects, our executive chairman and CEO, Raymond Ng, has also purchased 10 million shares of Enviro-Hub, raising his total stake to 34.65%.

Law Siau Woei, one of the co-founders of Pastel Glove, will also be receiving approximately half of his proceeds from the sale of Pastel Glove in new Enviro-Hub shares issued at 8 cents per share. After which, he will become the second largest stakeholder in Enviro-Hub with close to a 19% stake in the enlarged share capital.

Candace Li is a research analyst with the Singapore Exchange

Photo: Samuel Isaac Chua/The Edge Singapore