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When Covid-19 forced Top Glove to shut down 28 of its 41 factories in Malaysia, the market not only sold down Top Glove share price, it crashed all other glove manufacturers’ share prices as well.

Does it make sense?

Make sense or not, but who is to argue with Mr. Market? As an active stock market participant, I can understand Mr. Market’s logic.  The standard market practice concerning bad news has always been, “Sell first, talk later.” The reflex action of Mr. Market on receiving the Top Glove lockdown news was to assume that all other glove manufacturers might be similarly affected.

A few days have flown by since the Top Glove lockdown news hit the airwave. Now is the time to address that “talk later” phase. Is the selldown of other glove manufacturers’ share price justified?

Let’s dissect this “talk later” episode of Mr. Market by considering the views of the rest of the world on Top Glove lockdown. Before we begin, please be very clear in your head. Malaysia is a very small, tiny, insignificant country relative to the USA, Europe, China, Japan, etc. But when it comes to disposable glove manufacturing, Malaysia is a superpower in the league like no others. Malaysia is a unipolar power of disposal glove. There is no equal to Malaysia, especial during this pandemic when the world needs disposal gloves, despite the impending arrivals of mass vaccination to stamp out Covid-19.

Here are some of the snapshots of what the major news media reported:

    Forbes headline: “Major PPE Maker Shuts Factories After Nearly 2,500 Workers Test Positive For Covid-19.” The article’s major concern: “The extent to which the factory closures will further affect the world’s already tight supply of rubber gloves.”
    Reuters headline: “Top Glove warns on deliveries after virus outbreak shuts plants.” The article’s major concern: “One analyst said Top Glove’s main rivals did not have spare capacity to increase supply to meet a shortfall, saying Hartalega and Supermax are already running at best full utilization rate.” (Note: Reuters’ news was carried by multiple news media.)
    Medicalexpress headline: “World's top surgical glove maker shuts factories due to coronavirus.” The articles’ major concern: “A Malaysian company that is the world's biggest manufacturer of surgical gloves will close over half of its factories after a surge in coronavirus cases …”
    CBS headline: “More than 2,400 workers at world's top glove maker test positive for coronavirus.”  The article’s major concern: “We expect delays in some deliveries by about two to four weeks, as well as a longer lead time for orders ….”
    USNews headline: “Virus Outbreak Delays Production at World's Top Glove Maker.” The article’s major concern: “…the world’s largest maker of rubber gloves, says it expects a two-to-four-week delay in deliveries … raising the possibility of supply disruptions during the pandemic.”

Intraglove International Pte Ltd, in its Nov 16 news message to clients, wrote, “As a result [of Top Glove closure of production facilities] the global market will face additional supply shortages of nitrile gloves. We also expect further price increases. … However, we do advise clients to place their new orders as soon as possible to avoid shortages and minimize [price] increases.”

Clearly, the world and the glove market are concerned about Top Glove lockdown, which translates into GLOVE SHORTAGES!

It does not take a genius to figure out that, as the pandemic explodes across the continents, demands for disposable gloves will further outstrip supplies. This situation will remain for some time. There was news galore in recent days heralding the efficacies of covid vaccines. They gave hope to the world. But, the fact remains - none of those vaccines has yet been approved for mass vaccination. There are still in their critical 3rd stage trials. Gaining FDA approvals depends on the veracity of their 3rd stage data. No certainty exists that vaccinating the masses of the world will not encounter unexpected problems. Even if it does, the logistic of vaccinating the developing world remains a Herculean task. The world faces a long, winding, and uncertain road ahead before we can put this pandemic to pasture.

But this is certain. The shutdown of Top Glove’s production facilities will reduce the disposable glove supplies by about 3 billion pieces for the next 1 month. This shortfall will further assert pressure on an already tight supply situation. It is, therefore, a no-brainer to expect the glove market to push the ASP higher.

So the investors will have to decide in this “talk later” phase of Mr. Market. With the impending surge of ASP, we can expect the coming 2Q21 earnings of Supermax to be more super than they already would have been. This shortage will push the ASP higher. It will automatically push the earnings even higher. The key investment decision for those who have sold will depend on their risk assessments. Are they convinced that Supermax will have another super-earning quarter or a locked-down disruption? A bird in the hand is worth two in the bush, but which would you bet on?

Make a call.


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