The glove-making industry has been on a tear since the outbreak of Covid-19. As demand continues to surge, share prices of glove markers have shot up multi-fold, in tandem with earnings growth.
“We are selling what we can produce,” says Lee Jun Yih, executive director and finance director of UG Healthcare, whose production is running at full steam.
Along with the spike in demand, there have been so-called “spot” buyers who are happy to pay a premium so that they can get their hands on enough stock to resell. For the glove makers, this naturally means a much fatter margin.
However, Lee maintains that despite the spike in new demand, UG Healthcare is for now only selling to its long-term customers – a base of between 800 and 1,000 of them – as it is a sustainable relationship that’s really critical. “We want to make sure our long term customers stick with us,” he says.
To meet the higher demand, UG Healthcare is speeding up the reconfiguration of its production lines that will boost its ability to produce more.
Prior to the outbreak, it had planned to add an annual production capacity of 300 million pieces by end of June 2021.
It will now increase capacity by 500 million pieces by March next year. It is now planning yet another 1.2 billion pieces, which will bring its total capacity to 4.6 billion pieces. Prior to the outbreak, the capacity was 2.9 billion pieces.
While the bulk of the demand now comes from medical users, as economies reopen and businesses try to function with a semblance of normalcy, there will be new demand from non-medical users, such as those in food and beverage.
On Aug 11, the company announced that revenue for 2HFY20 ended June 30 increased by 80.9% y-o-y to $91 million. However, thanks to higher selling prices, the company’s gross profit margin increased from 20% to 36%.
As a result, its earnings surged more than 11 times to $12.6 million, from just $1.2 million in the year-earlier period.
The company’s share price, like other glove makers, have already shot up in tandem with the higher earnings. On Aug 13, UG Healthcare shares closed at $2.99, up more than 2,000% year-to-date.
Paul Chew, head of research at Phillip Securities, is optimistic that UG Healthcare’s run still has legs. “We think the demand-supply mismatch can persist into 2022,” writes Chew in his Aug 23 note, where he raised his target price to $4.15, up from $2.70.
He believes UG Healthcare is able to maintain the growth momentum because of its focus on emerging markets in South America and Africa, where competition with other brands and distributors is not as entrenched.
“And the penetration of gloves usage for these countries is low and provides an extra lever of growth compared to other developed countries,” writes Chew.
