Among glove makers, Riverstone has most attractive margins

Singapore

THE prospect of relaxed Covid-19 restrictions has driven down the share prices of most glove makers so far this year. Top Glove Corporation, for instance, is down 23.4 per cent and UG Healthcare Corporation has also lost 23.4 per cent of its value.

Riverstone Holdings, however, stands out with a 39.3 per cent gain. Could the market be anticipating this company to win when its peers are losing?

Based on an analysis by The Business Times of the financial performance of the major glove makers listed here and in Malaysia and Thailand, Top Glove, although it is the world's largest glove manufacturer, does not enjoy the same economies of scale as some of its peers.

In fact, Top Glove had the lowest profit margins and returns within the peer group BT analysed.

Top Glove's operating profit margin of 12.3 per cent suggests that it was least efficient in controlling operating costs compared to its 6 other peers, according to their latest 2 quarters of reported financial numbers.

The company's operating cost was disproportionately high at 89.5 per cent of its revenue, resulting in its operating profit margin being significantly lower than those of the other 6 - which ranged from 22.9 per cent to 52.4 per cent.

Top Glove also had a small net profit margin of 9 per cent - the lowest among its peers.

Top Glove, in its financial statements for the quarter ended February, did not report cost of sales. It is therefore not possible to calculate the company's gross profit margin. Supermax Corporation, Kossan Rubber Industries and Hartalega Holdings also skipped reporting this item.

Given, however, that Top Glove's operating cost took up almost 90 per cent of its revenue, and that it was still profitable at the operating level, this would mean that its cost of sales was fairly low.

In contrast, Supermax's operating margin was the highest at 52.4 per cent. But its net profit margin of 34.7 per cent was not the highest. Riverstone and Hartalega had lower borrowings, which probably meant lower financing costs and better operating profit margins.

Top Glove also saw the lowest return, be it on equity or assets. The factor that separates return on equity and return on assets is the use of financial leverage or debt, as assets are supported by equity and any debt that the company takes on.

Companies in the glove making sector generally have little borrowing. All 7 had healthy debt-to-equity ratios, with Thailand-based Sri Trang Gloves' 0.22 being the highest and others not exceeding 0.08.

But Sri Trang's days of sales outstanding stood out as the smallest, which means it took on average the shortest time among its peers to collect payment after a sale was made.

In contrast, the Malaysia-based UG Heathcare required 152 days on average - or almost double the time Sri Trang took to get paid by its customers.

But even though it scored the lowest on several metrics, Top Glove, which has deferred listing in Hong Kong had the highest price-to-earnings ratio among its peers.

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