The True Deep Value Stock – Waiting to be Discovered
With global pandemic seemingly calming down, what should come next should be the stabilization of global glove supply and demand. However, stabilization would still mean outperformance in terms of glove demand as compared to few years back then. So, who would be the winner of this game?
We understand that glove price, a.k.a. Average Selling Price (ASP) are prone to reduce soon, perhaps as soon as next year. However, the production in line should not reduce for the numbers of glove manufactured, what does this means? This signifies that glove manufacturer would still enjoy a higher revenue and profit, however reduced margin due to ASP.
So, fundamentally, the raw material supplier to gloves should be the beneficiary as they needed it no matter how high the ASP is as they need to maintain the production line(s).
Hence this company – D’NONCE TECHNOLOGY BERHAD (KLSE:DNONCE) is prone to be the winner of the game of gloves!
DNONCE had a major management and corporate structure change since mid of last year. They are amongst the market leader of carton boxes supplier to glove makers in Thailand. Do bear in mind – majority of raw material for gloves comes from Southern Thailand, which they are the largest latex exportation country in the world.
Wait a minute, how would Malaysia be the leader of world class glove manufacturer when Thailand is the key raw material supplier of latex? Previously, Thailand were focused on the upper side of the value chain. But since they saw the mooning of glove ASPs, immediately the government wanted to have a share of the game by encouraging expansion of their existing glove manufacturers.
We can easily foresee that the rubber glove market in Thailand would expand, very quickly. Fortunately, DNONCE’s carton box manufacturing facility was located in Sadao, Thailand. Which are in close proximity to the glove manufacturers in Thailand. And so far, they had only utilized 2 acres out of 20 acres of existing land bank they have, expansion plan to increase machinery and manufacturing capacity is in place, and we would find out really soon in the next 2 quarters!
If you are still confused on what so special about DNONCE, here’s the simplified version for your understanding.
Global Glove Demand For Gloves Increases --> Attractive Margin For Glove Manufacturers --> Increased Capacity For Glove Manufacturers --> Demand More Carton Box Packaging (Beneficial to DNONCE) --> Carton Box Is A Must In Glove Manufacturing, Not Hindered By ASP Fluctuation
By comparison, over the one-year period TOPGLOV’s share price had increased by 214.26%, SUPERMX’s share price had increased by 585.23%, KOSSAN’s share price had increased by 64.95%, and HARTA’s share price had increased by 109.41%.
But guess what? DNONCE had merely grown by a small 46.58%. We understand that glove companies are facing reduced valuation due to ASP stagnation. However, as demand increases, the earnings for DNONCE can only go up but not stagnant or even drop!
Based on our studies for carton box manufacturer, on average the PER would be approximately 18 – 20 times. Assuming DNONCE could hit 15 million net profit in the next financial year, the market capitalization for DNONCE should be 300 million. And currently, DNONCE is only treading at 168 million market capitalization, a 132 million market capitalization discount, or 44% discount!
Should you invest in DNONCE now? I do not know the answer. But if not now, then when?
https://klse.i3investor.com/blogs/HIDDENGEMLIST/2021-02-16-story-h1541108476-The_True_Deep_Value_Stock_Waiting_to_be_Discovered.jsp
