Regional pandemic beneficiaries tanking; analysts see worst yet to come

GLOVEMAKERS in Singapore and Malaysia, as well as personal protective equipment maker Medtecs International , have suffered hits in terms of profitability and market values amid the easing of the coronavirus pandemic. 

These counters booked record-high profit and revenue figures during the height of the pandemic. Their share prices rose as new virus variants were discovered and investors piled into the stocks.

But with the roll-out of vaccines and easing of restrictions on capacity limits and group sizes, the prospects for these companies are dimming.

“Pandemic darlings are not going back to their glory days” barring any new “super pandemics”, said Justin Tang, head of research for Asia at United First Partners. 

Top Glove Corporation and Medtecs reported losses for their fourth fiscal quarter and first half of the fiscal year, respectively. Top Glove booked a 52.3 per cent decline in revenue, while Medtecs’ top line sank 63 per cent. 

Top Glove, which consistently saw net profit and revenue figures hit historical highs during the pandemic, has also deferred capacity expansion plans and put a planned Hong Kong listing on hold. Other local glovemakers, meanwhile, have been hit by lower average selling prices (ASPs) and stiffer competition, due in part to the willingness of newer entrants and Chinese glovemakers to lower their prices for greater market share. 

Riverstone , UG Healthcare and new entrant Sri Trang Gloves also booked weaker earnings. 

Higher energy and raw material costs have further crimped margins for glovemakers.

SAC analysts noted that UG Healthcare’s “excess channel inventory” for end-users and distributors might take up to 2 quarters to normalise, which would exert pressure on glove ASPs but helps the company’s trading business.

The analysts noted that UG Healthcare’s plant utilisation had fallen in H2 due to a shortage of workers. The company’s new facility for the additional annual capacity of 1.2 billion pieces of gloves has also been delayed till October. 

After 2 years of aggressive ordering and stockpiling habits, a number of countries around the world have also scaled back on glove orders. 

Phillip Securities analyst Terence Chua said the fall in these companies’ financials has been worse than he expected. And, tougher times could still be ahead for glove companies that ramped up capacity aggressively during Covid-19. “We are bearish on the outlook for the gloves sector for the next 2 years,” Chua added. 

Malaysia’s glovemakers – Hartalega, Kossan Rubber and Supermax – also saw net profits and revenues fall in the latest quarter. 

Although analysts expected the weaker financials, they said that the rate at which the declines are taking place is alarming. Companies did not buffer themselves sufficiently during their heyday. 

“There was no diversification nor innovation when the going was good,” said Tang of United First. “Instead, all managers (of these companies) were doing was mistaking luck for skill.”

Phillip Securities’ Chua reckoned these pandemic beneficiaries could not sufficiently buffer themselves due to the “fluid and uncertain trajectory of the Covid-19 pandemic”, which made for “difficult forecasting and planning”.