Many analysts have forecasted super strong earnings in 2020 and 2021. Hence, the 1-year forward PER would be extremely low. However, if you pay attention you may realise a sharp drop of earnings after 2021 as average selling price ("ASP") for gloves is expected to drop sharply followed by huge supply by glove makers. Hence, it is reasonable to tell that PER for glove makers after 2021 will go up sharply.
The thing is, how soon the ASP for gloves will start dropping?
PRICE TREND FOR N95 MASKS
I may provide an example - which is masks. The covid-19 started in Malaysia early this year, and it is June now. It has been almost 6 months. However, I am aware that masks would not be a good benchmark for gloves, as glove/glove makers may require stricter certification, approva, higher barrier of entryl and etc.
In regard of this, I would NOT give an example of normal mask, but N95 masks where some of them required to be tested and certified by authorities such as FDA, NIOSH and etc.
Back in March 2020, when masks are in shortage, there are numerous positive news and growth prospects including the forecast for the next few years up to 2026.
Now, not even in June 2020, but May 2020, the prices of N95 masks (not normal mask):
VENTILATORS vs. GLOVES
Many have pointed of that gloves have a higher barrier of entry. I agree. However, if you compare Gloves to Ventilators, you can know that it is more time and effort consuming to produce a ventilators, which also required approvals and certifications from authorities.
Yet, many countries placed huge orders from China ventilator suppliers, even it is a highly regulated item since it is for medical use which require approval for authorities.
CAN CHINA GLOVE MANUFACTURERS RAMP UP GLOVES PRODUCTION - FASTER THAN EXPECTED?
Above is a list of Glove Manufacturers and Distributors in China.
In the next section, I would provide more information about the potential and timeline for a market equilibrium for gloves (supply vs. demand) which would lead to a decline in gloves' ASP. That could be part of the reason, explaining why the share prices for glove companies in KLSE could not go up higher, despite a lot of positive news regarding to their ASP hikes, growth prospects etc.
Stay tuned for PART 2!