The onset of COVID-19 has increased the demand for personal protective equipment (PPE) and I believe this will continue to rise. I have been tracking the number of COVID-19 cases in the world, sadly to say that, cases in the US and the UK have been trending upward at around 70k and 41k per day, respectively, as reported on 27 Oct 2021. The World Health Organization (WHO) estimated that some 89 million medical masks, along with 76 million examination gloves and 1.6 million medical goggles are needed each month to respond to the pandemic.

This upsurge in demand for PPE could present many scalable opportunities in Malaysia’s rubber glove industry, especially as the government has introduced new incentives for businesses. According to Malaysian Rubber Glove Manufacturers Association, the country already supplies 65% of the world market for rubber gloves (300 billion pieces) and recording 52.7 billion ringgit (US$12.7 billion) worth of glove exports in 2020. This makes the products a key driver behind Malaysia’s resilient exports during a year in which global demand for the country’s resource-based and traditional manufacturing was adversely affected by the pandemic.

Back in year 2020, ATS ventured into the glove business, focusing on the manufacture and sale of medical gloves which is now reported under the Gloves segment. ATS commenced its maiden glove manufacturing facility at Chemor, Perak in January 2021 and has according to the AGM, they have now completed Phase 1 comprising 6 glove dipping production lines.

They plan to target to complete Phase 2, comprising 4 glove dipping lines by November/ December 2021 as per the message conveyed by the director during the AGM. They also acquired an industrial land measuring 72,770 square metres in Kamunting, Perak this year. This is for future glove business expansion.

ATS posted revenue of RM28.30 million for the Q1FYE22, representing an increase of 112% as compared RM13.36 million recorded in the Q4FYE21. The increase was largely due to higher sale of medical gloves on the back of higher capacity output and units sold.

Barring any unforeseen circumstances, upon the completion of these additional 4 production lines end of this year, ATS will have a total 10 production lines with an annual capacity of 2 billion pieces of medical gloves as written in the annual report.

Let’s assume that if the capacity is running at 80% per annum, that will be 1.6 billion pieces of gloves to be produced per annum.

As per the Ambank research report, the analyst forecasted the new nitrile gloves' ASP assumptions of US$26.6/US$25.5 for FY22/FY23.

Given the challenges, for the worst-case scenario, assuming ASP of gloves: US$22 per 1000 pcs / RM88 per 1000 pcs (currency as per 25 Oct 2021)

ATS’s revenue for a financial year (assuming 80% of the full capacity running for 12 months) for the glove segment could potentially be: (1.6 billion x RM88/1000) = RM140.8 million

Just on the glove segment itself, they could potentially be making revenue of RM35.2 million on a quarterly basis, which could be positive to ATS’s bottom line.

Majority of the people may think the demand for gloves is not sustainable. To me, glove demand will remain strong as the pandemic is not going away soon. As an investor who has seen many up and down cycles, there are always opportunities when an industry is oversold. Beyond the pandemic, the rising need for quality medical services in not only advanced economies but also developing ones will sustain global demand for gloves in the long term.

I’m certain that the pandemic has created a new norm. Many individuals including me, will also remain cautious even after the pandemic and wary of being infected by diseases. Wearing any form of PPE such as masks, shields and gloves will continue for a long time. Business operators will also be extra careful, especially those in the airline industry, and many staff will continue to wear gloves. Thus, the demand for PPE such as gloves will remain strong.

ATS venture into the glove business is expected to allow them to ride on the favorable long-term prospects of the glove industry. With that, I do hope the future earnings of the Group will improve in the coming years.

Let's hope with my assumptions will materialize and we can see some sustainable profitability for ATS.