Glove Stock Investment for 2021

Glove stock related counters have been one of the hottest counter for the year 2020.

We can see that the share prices almost all counters have shot up so high, that we start to ask whether it is still worth to invest or not.

For me, I always ask the following questions before I start to take position in any stocks.

1. Is this a business that I can easily understand?
2. Is this a sector that is within my circle of competence?
3. Does the company have been having consistent revenue and profit growth for the past 5 years?
4. Does the company having a healthy and strong cashflow?
5. Does the company having a healthy debt position?
6. Is the growth sustainable or is it a temporary event?
7. Does the company have a strong economy of moat or a strong brand?
8. Does the management have a strong culture?
9. Is the stock undervalue or overvalue?
10. Has the share price retrace to support line or at at the resistance line?

I do not part way with my money unless I have a clear answers to the above.

In Malaysia, we have the following glove related counters:

1. Topglove
2. Hartalega
3. Kossan
4. Supermax
5. Comfort
6. Careplus
7. Rubberex
8. HLT Global
9. ES Ceramics Technology

Fundamental Analysis of KLSE Gloves Counter

1. Top Glove is the biggest counter in term of market cap. Currently it has a market cap of RM55 bill, followed by Hartalega at RM44 bill, and then Supermax at RM17 bill.

2. PE Ratio of Top Glove is at 13.45. Hartalega is more expensive with PE ratio at 23. Supermax PE Ratio is only 7.66. Kossan PE Ratio is 18.8. In term of PE Ratio, it seems that Top Glove is quite reasonable?

3. Beta of the stock reflects the fluctuations of a stock to changes to an overall market. The higher it is, the more correlated it to the stock market. Beta = 1 means it is having the similar fluctuations with the overall stock market. For a good diversification, we want a variety of beta values in our portfolio.

For Top Glove, beta is only 0.46. Not so correlated to KLSE. Hartalega is having beta of 1.14. Beta for Supermax, Comfort, Careplus and HLT Global is having beta of > 2. This will have more volatility versus the overall market.

4. Dividend Yield is fluctuating quite a bit for most of the counters due to the huge fluctuations in the share price for the recent months, so I will not be commenting much. Investors are advised to do their own calculations. Key questions to ask is whether the dividend yield is better than the current fixed deposit rate, is the dividend yield sustainable, and whether the future business profit is able to increase the dividend in the long run.

Top Glove Stock Evaluation

Top Glove is indeed a strong company. It is the world's largest manufacturer of gloves. With about 45 factories in Malaysia, Thailand and China, it produces 80.2 billion of gloves in a year. That's an impressive number of gloves that they are producing!

They exports their gloves to over 195 countries all around the world. Such a huge market penetration.

With the recent COvid-19 pandemic issue that happened all around the world, where many countries are battling, we can see that the demand of gloves will not be slowing down very soon.

Even though the new vaccine is already started to be distributed all around the world, gloves will still be a very important things that is needed in any hospital activities.

The revenue and profit of Top Glove has surged for 2020. Look at the graphs below.

Top Glove has also increased it's dividend payout by 4 to 5 times due to this high profit.

It has a dividend payout policy of 50%.

Below is a picture of Top Glove Management team:

Reading the financial report of Top Glove of 2020, I am impressed of the goals that they are setting.

They plan to become a Fortune Global 500 company by 2035. They have 15 years to build another 305 factories? We hope that they can make it and make Malaysia proud :)

Top Glove is producing a few types of gloves.

1. Nitrile Glove - 53%

2. Latex Powder Free - 19%

3. Latex Powdered - 17%

4. Surgical - 8%

5. Vinyl - 2%

6. TPE/CPE - 1%

Sales volume of Nitrile Gloves has been increasing over the years.

Latex powdered gloves is dropping. It seems that the demand of nitrile has replaced the demand of latex powdered gloves.

The sales are mainly coming from North America (22%), Western Europe (17%), Eastern Europe 17% and Asis-ex-Japan (19%) and Japan 8%.

Looking at this, I think there is still many untapped potential.

According to Grandview Research, US nitrile gloves demand will continue to grow at a compounded annual growth rate (CAGR) of 14.1% from 2020 to 2027.

This is due to the risig awareness of using nitrile gloves in healthcare facilities (e.g. hospital, care centre). Since some people have allergy to latex, nitrile is preferred. And since US is one of the country that has a very bad Covid-19 outbreak, this demand will sustain.

Top gloves has 279 critical suppliers and majority of them are from Malaysia, Thailand and Vietnam. Good to support local Malaysian suppliers.

Part of a good practice of a company is to always improve efficiency.

To produce gloves, water is very important.

For FY2020, Top Glove has improved its water consumption intensity to 0.280 m3/1,000 pcs gloves.

In fact, they used rain water as part of their production. Impressive.

In fact, they saved RM504K through rainwater harvesting.

The turnover rate for Top Glove is not that low though, it is at 18.60% for FY2020. Seems to be increasing since FY2017. Most of the workforce are below 30 years old local Malaysian.

Even so, the company is aggressively hiring people.