RIVERSTONE HOLDINGS LIMITED (SGX:AP4)
UG HEALTHCARE CORPORATIONLTD (SGX:8K7)
Riverstone & UG Healthcare - Rubber Gloves – Strong Fundamentals Remain Intact
- We remain positive on the fundamentals of glove makers following a session with industry group MARGMA at InvestSG this week.
- MARGMA expects global glove demand to grow by another 15-20% in 2021F (2020F: 360bn pcs) and sees an ongoing glove shortage situation.
- Post Covid, MARGMA expects ASPs to stabilise with better supply-demand dynamics. Yet, ASPs could remain 50-60% above pre-Covid levels by 2023.
MARGMA reiterates positive view on glove sector
- We hosted the Malaysian Rubber Glove Manufacturers Association (MARGMA) at our InvestSG event this week, where we discussed the opportunities and challenges facing the Malaysian glove sector post-COVID-19.
- MARGMA remains upbeat on prospects for the sector, and expects global rubber glove demand to reach 360bn pieces in 2020F, followed by a further 15-20% growth to c.440bn pcs in 2021F. Even with the COVID-19 pandemic fully under control, MARGMA sees sustained growth in the coming years, with
- the need to replenish glove inventory levels especially in neglected sectors (industrial, F&B, electronics, etc.), and
- increased glove usage given higher hygiene awareness.
Glove shortage situation could persist in 2021F
- Currently, due to the supply shortage situation, order lead times for gloves have risen to 8-10 months, compared to 1.5-2 months pre-COVID-19. Despite the accelerated pace of capacity expansion by existing glove players and new industry entrants, MARGMA believes the global glove shortage situation will still persist in 2021F.
- MARGMA notes that while global glove demand has surged in recent months, capacity growth will take time to catch up, as setting up a production line takes between 1 and 1.5 years.
ASPs could remain 50-60% above pre-COVID-19 levels by 2023
- MARGMA notes that glove industry contractual ASPs at current are about US$70-80 per thousand pcs of gloves, some 200% higher than pre-COVID-19 levels (c.US$25). Amid the strong glove demand and rising raw material costs, glove companies are seeing a further price hike trend in the coming months.
- MARGMA thinks that while pricing will eventually stabilise in tandem with better demand-supply dynamics, this will be a gradual process, and estimates that ASPs could still remain c.50-60% above pre-COVID-19 levels by 2023.
Strong fundamentals remain intact; reiterate ADD on UG Healthcare, Riverstone
- Our Neutral sector call is mainly premised on near-term share price volatility given recent vaccine development newflow. Nevertheless, we remain positive on the fundamentals of glove makers as profits are set to continue growing through 2021F.
- We reiterate our ADD calls on both UG Healthcare (SGX:8K7) and Riverstone (SGX:AP4).
- Post the recent share price corrections, they are trading at 5.3x and 9.4x CY22F respectively, which we think more than price in earnings normalisation post COVID-19. There remain regulatory, manufacturing and logistic hurdles to the widespread availability of COVID-19 vaccines.
- See
- Riverstone Share Price; Riverstone Target Price; Riverstone Analyst Reports; Riverstone Dividend History; Riverstone Announcements; Riverstone Latest News.
- UG Healthcare Share Price; UG Healthcare Target Price; UG Healthcare Analyst Reports; UG Healthcare Dividend History; UG Healthcare Announcements; UG Healthcare Latest News.
- UG Healthcare remains our preferred pick given its relatively cheaper valuation and our expectations of higher normalised profits backed by a 59% y-o-y manufacturing capacity expansion in CY21F.
- UG Healthcare is also one of the CGS-CIMB's latest Singapore stock picks. See Singapore Stock Picks - CGS-CIMB Research 2020-11-17: Go With The Flow, Don’t Fight The Market.
ONG Khang Chuen CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-11-20
SGX Stock
Analyst Report
2.500
SAME
2.500
1.700
SAME
1.700
