Among the values of Daibochi is its stable MC client base. Its MNC clients include Nestle, Mondelez International, Pepsico, Hershey's, Dutch Lady and Ajinomoto. They are in the stable consumer staple industry. Daibochi has built up the base before Scientex's acquistion in 2019. Otherwise why would Scientex venture downstream in 2019 to acquire this client?

Another point is Daibochi has recently acquired Mega. This has complimented its portfolio as Mega caters to non-MNC clients.

Personally I prefer Daibochi to Scientex despite Scientex's share price growth in the past. I see the downstream converter business as the more valuable part of Scientex's portfolio.

Besides I like simple business. Investing in Scientex mean buying not just its plastic packaging but also the property business too. I would rather hold Daibochi and separately investing in a pure property play of my choice.

Thanks Multibagger for the useful info on FGV scenario. The third scenario mentioned by CGS-CIMB is the key. Even if Scientex increases its holding to near but below 90%, Daibochi cannot request for delisting if more than 10% of the minority shareholders are against.

Next is the guessing game of the intention of the few major minority shareholders. As shown in the shareholder list of the past annual reports, all of them have been with Daibochi longer than Scientex. None of them took up Scientex's offer in 2019.

Public Islamic Opportunities Fund first appeared as a shareholder in 2010 with 1.71%. The latest annual report shows this has grown to 7.34% under four separate Public funds.

Apollo Asia Fund Ltd first appeared with 2.47% in 2011. It has grown to 9.38%. It has never reduced its stake. From the fund website it seems to be a long term patient capital. The manager Claire Barnes lives in Malaysia. She probably understands the value of Daibochi as much as Scientex.
https://www.apolloinvestment.com/

Below was the 2019 quarterly report where she wrote about Scientex first acquisition.
https://www.apolloinvestment.com/F190107.htm

Samarang Asian Prosperity inherited the stake from Halley Sicav Asian Prosperity after a merger in 2017. The fund first appeared with 2.44% stake in 2012. Over time it has increased to above 5%. According to Bursa filing, its shareholding briefly dropped below 5% in 2020. But it added back in the RM2.4 to RM2.5 range in April this year.

Based on the past behavior of these three funds, I can conclude that they are long term shareholders. If they didn't sell in 2019, it doesn't make sense for them to sell in 2021 at an unattractive price given Daibochi's fundamentals remains healthy (else Scientex will not up its stake). Of course there could be non-investment related factors like raising cash to meet redemption or acquiring better opportunity. But given current market condition the likelihood is low.

So my conclusion is first these funds are unlikely to sell at RM2.70, and second Scientex cannot reach 90% without getting two out of three of them to sell. The threat of delisting is not easy to carry out as Multibagger has shown.

Personally not only will I not sell my shares, but I consider opportunistically to top up at RM2.69. At worst I have to sell back at current price or hold it for long term. The upside is Scientex may give a fair offer if it's really keen to acquire full control.

What could be the possible scenarios if Scientex increase its holding above 75% but below 90%?

Rule 8.02 of Chapter 8 of the Listing Requirements issued by Bursa Malaysia (“the Exchange”) stipulates that a listed company must ensure that at least 25% of its total listing of shares are in the hands of the public shareholders.

Daibochi may still apply to the Exchange for acceptance of a lower spread. So the next question is will Daibochi just simply allows itself to be delisted, which is against minority shareholders' interest but Scientex probably doesn't mind?

Any precedence?

Scientex's offer is inadequate.

All the three analysts who follow Daibochi have buy call on it. Their TPs range from RM2.90 to RM4.04. They are all higher than Scientex's miserable RM2.70.

The other way to gauge is to compare against the past 5 years average forward PE of 20.5X. Based on FY22E EPS of 19 sen, Scientex's offer price implies a forward PE of only 2.7 /0.19 = 14.2X. The offer is 31% below the past 5 year average. At the 5 year average of 20.5X the offer should be worth RM3.9.

Moreover just by paying the average is not enough. Acquirers usually pay a premium to gain complete control.

Obviously Scientex is taking advantage of the current, temporary low point. Shareholders should simply reject its offer.

There are many levels of Chinese governments. Glove companies like Intco receive support from local governments which are only too eager to bring in investment and employment.

The implicit subsidy comes in several forms. Take the example of investment agreement signed between Intco and Pengze county government. The county government offers 800 acres of industrial land at the price of CNY 40,000 (RM26,000) per acre. In comparison, Harta pays MoF RM228.7 million for 250 acres at Bukit Kayu Hitam, or about RM0.91 million per acre.

https://vip.stock.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=300677&id=5938481

Like Malaysian glove fans, Chinese glove fans believe their side have the cost advantage and can remain profitable at sub-USD20 nitrile ASP. They claim advantage in NBR supply (new supplies have come online), tax incentive, secured freight arrangement among others. As a proxy to the cost structure I look up the quarterly reports. In the latest quarter Intco has 64% operating margin versus Harta at 73% and Top Glove 63%. So they are in the same league. A more accurate comparison can be made after ASP normalized.

Nonetheless like many I have confidence in Harta's long term prospect considering its efficiency, innovation, culture and management. However I'm also prepared for a rough ride in the next few years. Even if the Chinese fails to further expand market share, at minimum they can sell aggressively and suppress everyone's margin.

Treasurehunt has rightly pointed out the wildcard is the expiry of Section 301 exemption. But also need to consider while technology blockade receives bipartisan support, many within Biden's circle view the tariff war as a mistake as the bulk of the tariff have actually been passed on to the American consumers. Lets wait and see.

@bang_miskin, before the pandemic it was hard for Chinese competitors to secure capital to fund expansion. As profit margin was only single digit even for Malaysian leading firms (except Harta) the payback period was too long.

But the pandemic and ensuing fat margin has changed the calculation. In the short term the Malaysian glove industry enjoys a windfall. But this has also opened the door for competitors everywhere. The Chinese poses the most serious threat due to their industrial might and implicit government subsidy.

Do the Chinese expand aggressively because they have the insight that ASP will remain elevated in the future? I don't think so. I agree with treasurehunt's comment. The Chinese are prepared to price below cost if necessary. They hope through their industrial might, the newly established economy of scale, and government's backing, they can displace Malaysian's top position and dominate the market.

It remains to be seen whether they're capable. I'm not clear about their cost advantage as compared to the Malaysian especially Harta. But intense competition could happen in the interim period until inefficient producers get pushed out.

We refer to the Company’s latest update as announced via the Quarterly Report of the Company on 25 August 2021 with regard to the proceedings by the Company’s wholly-owned subsidiary, Allianz General Insurance Company (Malaysia) Berhad (“AGIC”), against Virginia Surety Company Labuan Branch.

The Board of Directors of the Company wishes to announce that the Court of Appeal of Malaysia had on 3 September 2021, dismissed AGIC’s appeal against the Kuala Lumpur High Court’s Decision delivered on 28 June 2019. (The High Court had on 28 June 2019 dismissed AGIC’s application to challenge the Award of the Arbitral Tribunal dated 8 February 2018).

As the matter involves the application of fundamental principles of insurance and reinsurance law, AGIC is in consultation with its legal advisers on its legal position and the next steps in relation to this matter.

This announcement is dated 8 September 2021.

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3191232

According to quarterly report, total fair value gain is 49m in 2Q21 versus 368m in 2Q20. Adjusted for FV effect, PBT should be 158m in 2Q21 versus a loss of 120m in 2Q20. Fair to say YoY performance is good? But probably isn't a surprise since MCO 1.0 fell on 2Q21.

But on QoQ basis this quarter isn't as good. ANP and NBV also decline. However MCO 3.0 fell on 2Q21.

The lockdown effects have made it difficult to assess its underlying performance.

Not just Allianz. AIA Life has also done well in Malaysia. Refer to slide 13. During 1H2021, VONB in Malaysia increased by 89%. It seems that life is doing very well despite current economic situation.

https://www.aia.com/content/dam/group/en/docs/press-release/2021/1H2021%20Analyst%20Presentation%20Final.pdf

The other surprise for me is insurance companies hold a lot more capital than regulatory requirements. In Malaysia LPI capital adequacy ratio (CAR) exceeds 400%. In Singapore United Overseas Insurance is 449%, and Prudential is between 335% to 400%.

Why so much capital? Do these players see a lot of growth potential to underwrite new businesses so would rather hold on to the capital than returning to shareholders?

There was an article on last Sat The Edge weekly which interviewed the Great Eastern group CEO Khor Hock Seng.

According to Mr. Khor, general insurance, with the right distribution and capabilities to manage products well, can be reasonably profitable. On the other hand, life requires more capital, so from an internal rate of return (IRR) basis, general insurance may be better. For general insurance, profit is evaluated yearly and not on future profits as life insurance is. But The Edge also mentions that in terms of absolute profit, though, life is higher than general insurance.

I'm not sure whether Mr. Khor is speaking about Singapore situation or insurance in general. As I understand the Malaysia GI space is competitive. But if GI really offers a better IRR, does it mean shareholder capital is better spent in expanding the GI business?

Yesterday LPI posted a respectable Q2 result despite MCO which started in Jun. Quarterly revenue and PBT managed on YoY basis. I also noticed that not only motor claim but fire claim also dropped. Because factories not operating?

The general insurance business is more resilient than I've thought. Could this be specific to LPI or also applicable to Allianz and other GIs?

The article says Liberty will become the largest auto insurer. Might Liberty and Generali bring better practices and technologies and pose stiffer competition?

@Toneefa, @pjseow,

It has been nice exchanging ideas with you, even though we don't agree on some topics. I always respect and look forward to contrarian views as that's how I learn.

Until the forum moderator clears up what I'm supposed to say or not say in this forum, I think there is no point responding to your comments only to be deleted again.

If my views are no longer allowed in this forum, I bid farewell here. All the best to your investment. And remember investment is lifelong journey beyond gloves.

@i3 forum moderator,

I’m amazed that my comments posted yesterday have been deleted by you.

I engaged in objective discussion. I quoted various data to share my view on why another demand surge in gloves is unlikely. I compiled and shared glove capacity data by various players. Despite being a long-term glove investor, I want to bring facts and balanced views into an otherwise emotionally driven discussion.

Isn’t that welcome by the forum?

I read up the community standards – no violence and threats/ self-harm/ bullying and harassment/ hate speech …. My comments violate none of these.

If you believe otherwise, please kindly explain.

If the forum rules disallow contrary views on stocks under discussion, please let me know too, either in public or PM me. I will quit and move elsewhere.

Some points to ponder about future capacity.

Besides the capacity plans of Malaysia Big Four, I will watch out for Sri Trang from Thailand, and Intco, Blue Sail and Zhonghong Pulin from China.

In a featured article published by The Edge a few weeks ago, Sri Trang current capacity was said to be 33.3 billion pieces per annum. It currently has expansion in three separate facilities in Southern Thailand. It plans to expand to 80 billion by 2024 and 100 billion by 2026.

Into Medical only had 19 billion by 2019. It expanded to 36 billion by 2020. In Mar 2021 it reached 45 billion (of which 21 billion were nitrile gloves). Last week it reached 51 billion (of which 27 billion were nitrile gloves). It also mention more nitrile capacity will come online this month.

Source:
https://ir.p5w.net/c/300677/questionlist.shtml

In the past cycles the Malaysian Big Four would have implicit understanding to collectively slow down expansion when the market demand slowed. Now with more big foreign players joining the fray, and with Intco vowing to unseat Top Glove’s position, it remains to be seen whether these players could avoid undercutting one another and adjust their expansion plan accordingly.

This, in my view, is the single most important factor that long term investors should pay attention to.

I also take this opportunity to address another concern raised by different people – that vaccination does not stop a person from getting infected.

Yes, Dr. Noor Hisham also said that 3,106 healthcare workers were infected after two doses. But note this was 1.26% of the total of 245,932 workers. Furthermore they were in a high risk group as their job nature has high exposure.

More importantly, out of the 3,106 infected workers, 1,012 had no symptoms (Cat 1), and a further2,088 only had mild diseases (Cat 2). Only 3 had lung infection (Cat 3) and another 3 required oxygen (Cat 4). And so far, touch wood, none required ICU admission (Cat 5).

In other words, 6 out of the workforce of 245,932 required hospitalization, or 0.0024% pf them, despite working in a highly exposed profession!

Source:
https://malaysia.news.yahoo.com/dr-noor-hisham-moh-data-025556819.html?soc_src=community&soc_trk=wa

And the implications to glove demand? As pjseow rightly noticed, every year tens of thousands of people died of flu. In fact, in certain years the death rate was far, far higher. Yet it didn’t cause a spike in glove demand. This is because for the great majority of people they go on with their daily lives despite being down with flus for a few days. There is no extra testing on them and most don't even visit the clinics.

Similarly, given that vaccines so far have proven to greatly reduced hospitalization in major glove markets (US, Germany, Japan, UK), the data does not support a surge in glove demand.

@pjseow, I agree with you prevention and vaccinations are necessary for coming years. I also believe booster shots will become routine, just like the annual flu jabs which are quite common in temperate developed countries.

HIV is a successful virus precisely it could co-exist with the hosts for years. But SARS-Cov-2 lifetime is about 2 weeks. In great majority of the cases, either the hosts die (in a few percent of infected population), or the virus get eliminated. In that sense SARS-Cov-2 is less successful than HIV.

But the key point of discussion here is whether the Delta or whatever coming Variant of Concerns could cause a surge in glove demand like in 2020.

As explained in my earlier comment, the current hospitalization rates in advanced countries (major glove markets) don’t support this idea. Dr. Noor Hisham also explained that although Labuan was ravaged by Delta variants earlier, the aggressive vaccination in the last few weeks have significantly driven down the Covid cases there. This is a proof that the vaccines are working, even against the Delta variants.

@Tonnefa,

Thanks for your detailed explanation. My thoughts on your points:

I agree with you Covid will continue to be a disaster for developing countries, or the 75% world population as you’ve mentioned. No doubt about that.

But note our discussion concerns glove ASP and profits. The top 4 Malaysian export markets – US, Germany, Japan and UK, already account for more than half of the export market. And they are the 25% population that are recovering from this Covid disaster now.

As long as the pandemic doesn’t turn acute again, as shown in the hospitalization data I provided above, there won't be another surge in glove demand like last year.

Besides, there is already a high base effect. In 2019 the global glove supply was about 300 billion. In 2021 it increased to a much higher 360 billion due to the pandemic. A further jump on top of the already high base in 2020 would require an even bigger disaster going on in advanced countries. All of this is against a backdrop of expanding supplies.


Your other point is “when we start to vaccinate, we will destabilize the equilibrium that the virus needs to achieve for a sustainable co-existence”

This is at best a conjecture. There are actually many counter evidence to this idea. Recall you and I both had about a dozen of vaccines since we’re born. But to this day, none of those deadly diseases where the vaccines protect us from, except for smallpox, have been completely eradicated. Many of those infectious diseases continue to spread in poor countries all these years. Yet none of these dozen or so diseases have evolved into more deadly versions and break down existing vaccines, despite “their natural equilibrium had supposedly been destabilized”.

Of course, one may ask even if current vaccines can contain the Delta variant, how about the Epsilon, Zeta, Eta, Theta and the long string of alphabets after that?

Well, I’m still optimistic based on two facts. First, improved booster shots and new vaccines are being developed round the clock by all major vaccine producers. Unlike 2020, this time we’re not caught off guard. The money, infrastructure and policy supports are all there. This is the top global priority. I’m confident the vaccine evolution could at least keep pace with virus evolution.

Second, there are historical precedence that as viruses mutate, they become less deadly and eventually co-exist with the hosts. One good example is the 1918 Spanish Flu was never wiped out but continued to evolve into different strains over the last century. We human lived with it without realizing it. On the other hand, deadly viruses like Ebola did not spread very far because it killed its hosts and cutting off the transmission chains.

But instead of guessing/ speculating what come next, the best is to let the data tells what is happening. Hospitalization rates at major glove markets (US, Germany, Japan, UK …) inform us how serious and deadly the new variants have become.

So far hospitalization rates at those developed countries rise only gradually. This is despite lockdowns being lifted and people throwing cautions into the wind. In UK case, Delta variant has been detected since Apr and clocked in more than a quarter million cases. Yet hospitalization rate is below 3,000 as compared to peak of near 40k. This is against the backdrop of last month European Cup where fans crisscrossed the continent, shouting and partying maskless.

Source:
https://ourworldindata.org/covid-hospitalizations

Until I see the hospitalization rates rise a lot more, and a lot more rapidly, I’m not convinced on the theory of deadly variants or vaccine failures will bring about another round of glove demand surge like last year. At least the market does not think in this way.

For long term investors, it’s better to keep watch on how supply evolve as that will be the important factor determining future ASP and hence profit. And work out the valuation accordingly. Hold with a long term view and only enter in stages.

Viruses keep mutating since time immemorial. Yet human race has survived numerous plagues in the history.

I'm optimistic that current vaccines are effective in containing the spread of Covid, even with the Delta variant. My optimism is founded on evidence. And one piece of that evidence is in Malaysia itself.

Recently Health DG Noor Hisham told us that

“At one point, Labuan had the highest number of cases per population of 100,000 people, outstripping even Kuala Lumpur, Negri Sembilan and Selangor.

Dr Noor Hisham said that Covid-19 cases in the tiny federal territory soared to 1,340, within a week at one point.

He attributed the spurt to the Delta variant which spread from workers in the shipping industry there.

He said Labuan saw cases declining in under three weeks after the government stepped up vaccination there.

He added that 52 per cent of those in Labuan have completed both doses of the vaccine.

“Today, there are only 26 cases in Labuan,” he said.”

Source:
https://www.malaymail.com/news/malaysia/2021/07/15/dr-noor-hisham-new-covid-19-variants-including-delta-is-airborne-and-can-in/1990198

@newway, but why would big players want to give signals to benefit small investors in Malaysia? Why would they want us to share their insider knowledge and profits, assuming there is one?

I don't know... That's why I ask the brainy one here. There must be a way that the ADR got converted in the first place through deposit of TG shares probably by IB, right? So you have no idea too?

Correct. Anyway to convert TG shares to ADR and sell at a profit?

No one talks about the Top Glove ADR TGLVY anymore. A month ago on Jun 15 the ADR closed at USD8.20. Given the conversion of 1 ADR to 4 Bursa Top Glove shares, the ADR priced Top Glove share at RM8.44 versus then Malaysian closing price of RM4.74. In other words, the US OTC market priced Top Glove at 78% higher than the primary market in Malaysia.

One month later, the TGLVY closed at USD4.38 yesterday, equivalent to RM4.60 per share. The US ADR price dropped by almost 50%. But it was still 22% higher than yesterday Top Glove closing in Bursa at RM3.76.

I noted over the last one month the ADR price declined only gradually with thin trading volume. Most of the days only a few thousand shares changed hands.

The ADR market has the sign of a cornered market. Was it a failed attempt to influence the Bursa price last month?

Given the ADR is still traded at a premium last month, I wonder why no one has converted their Top Glove shares to the ADR and sell at a the arbitrage profit? Was it because the ADR market was too small to worth the trouble? Or perhaps all the buying interests in the ADR market would just dry up since those were not genuine buyers in the first place?

One month already passed. The US ADR market still lives in a controlled parallel universe.

As an ex-banker, surely Tengku Zafrul knows a windfall tax may not worth the long term damage. However, political consideration often trumps rational economic thinking, especially for a weak government that lacks mandate and is currently under assault from all directions.

Recall it wasn’t too long ago that Tengku Zafrul wrote in The Edge on why another round of loan moratorium was unnecessary. All Malaysian banks have already been providing targeted loan assistance. He rightly questioned why provide a blanket moratorium given some businesses and individuals don't need it.

But as opposition politicians including the former PM Najib made noises, coupled with the fact that many banks reported very good Q1 profits, the current government caved in soon after. That was how Tengku Zafrul had to eat his words and we got another round of moratorium. In a sense the banks could now claim to have performed their second round of “national service”.

The same could have happened to the glove sector again. I fully agree the glove industry including its supply chain has created many jobs and contributed handsomely to the national coffer. However, beyond their shareholders and staffs, the general sentiment towards glove companies isn’t friendly. Not just among ordinary folks but the media too. Malaysian politicians are only too clever to exploit such populist sentiment. After Nazir Razak, Jomo and Mahathir, more could jump on this bandwagon.

However, a windfall tax may still be avoided. As a compromise, glove companies may be “persuaded” to provide a second round of “voluntary” contribution.

If that were to happen, it’s better to happen now than later. The stock market hates uncertainty. As long as this talk about windfall tax keep surfacing from time to time, it will be like the sword of Damocles hanging over glove share price as no one knows whether it could cost tens of millions, hundreds of million or even more.

The recent AGM presentation, webcast and additional Q&A have just been posted to Allianz website:
https://www.allianz.com.my/investor-updates

In the Q&A, Q19 asks "How much financing of investment-linked of new business has affected profitability of the recent quarter? Will the high growth rate such as the new business affect the future quarter’s profitably?"

The answer is "The minimum allocation rate for investment-linked products as imposed by
the regulator will create some new business strain for Allianz Life. However, the lower profitability in first quarter of 2021 was not from higher sales volume or new business strain but was mainly arising from fair value movement from the fixed income portfolio. Any changes in interest rate will create some volatility to the profit of Allianz Life."

Can anyone explain what is an "allocation rate" for an ILP?

How does the minimum allocation rate imposed by the regulator create new business strain?

Are ILPs sold at a paper loss during the first year such that the more are sold the greater are the (paper) loss?

Based on my limited understanding, the LNG trans-shipment business refers to the GUCD services. The facilities are available in Sungai Udang and Pengerang.

Good info.

Globally there were 118 and 143 LNG-powered vessels in 2017 and 2018. Currently this is still a very small market.

Source: https://www.maritime-executive.com/editorials/2019-will-be-the-year-of-acceleration-for-lng-as-marine-fuel

According to the 2020 Annual Report, the LNG bunkering asset has a book value of only RM31 million. The first LNG bunkering only took place as recent as in Oct 2020. We can keep an eye on how fast the business grows in 2021. I would expect more capex spending if this business can really gain traction.

We can also make some guesstimate on the future market potential based on the articles you've shared. Your article forecasts the global LNG bunkering market to reach ~USD5 billion or RM20 billion by 2027. Your other earlier article says MIDA expects Malaysian market size to reach RM2 billion (no timeline given).

Let’s assume the RM2 billion market is completely captured by PetGas. Revenue wise it's sizeable given 2020 revenue was only RM5.6 billion. However this could be a low margin business. If LNG bunkering is like a gas station business as operated by Petronas Dagangan, the net margin is only 2%, or about RM40 million net profit out of RM 2billion revenue. At this scale the net profit will be rather insignificant as compared with 2020 net profit of about RM2 billion.

Actually there are other ancillary services mentioned in the Annual Report, such as the LNG Truck Loading and Gassing Up Cooling Down (GUCD) services. However no indication has been given on how large these non-regulated business could grow to in the future.

@unicorn,

I searched in 2020 Annual Report. It states that "Launch of LNG Reloading service at RGTSU for PETRONAS LNG bunkering services, the first in Southeast Asia". Basically, PetGas regasification terminal at Sungai Udang works like a gas station for ships. It sells Petronas LNG to LNG-powered vessels, quite similar to PetDag stations selling to LNG-powered taxis.

I've googled to learn more about LNG bunkering. This article explains how bunkering is performed.
Source: https://www.klawlng.com/lng-applications/lng-vessel-bunkering/

LNG-powered vessels become popular because ports have banned/ imposed surcharges on vessels using high sulfur marine fuels in their effort to control air pollution. The second driver is climate change.
Source: https://www.bbc.com/news/uk-scotland-51114275

I don’t think LNG bunkering involves the Sino-American geopolitics.

I'm not familiar with the LNG bunkering service. Do you have any source that indicates the need and market size for such services by third party vessels?

The Annual Report has listed LNG bunkering as one of the several ancillary services offered by Petgas. In 2020 the total revenue from ancillary services was RM3.4 million as compared to group revenue of RM5.6 billion.

But frankly don't think I need luck. I hv always adopted a diversified portfolio and buy/sell in stages based on valuations.

Thank you!

@newway, I agree all of them are guessing. AM has to resort to new reasoning to support their neutral stance on glove sector now.

However it brings up a factor I've not considered before. Is future demand growth driven by "increased healthcare awareness" as touted by Margma and F&S, or by "enforceability of glove mandates as well as medical malpractice laws" as mentioned by AM? Maybe it's somewhere in between.

I agree current price seems reasonable. I've already added back Harta by stages since a few weeks ago, at higher prices than yours!

The following paragraphs are extracted from Am Investment Bank report today. The research house has turned bearish about the future glove demand, which I don't necessarily agree. But it's still good to consider its contrarian view from Margma and Frost & Sullivan.

"Post-pandemic demand projections are still overblown. We believe that the first post-pandemic year will see a flattish to negative growth in glove demand, as opposed to steady growth projections by Frost & Sullivan and MARGMA. This remains intact, as the expected fall in Covid-19 cases is postponed rather than cancelled.

We maintain our view that lasting glove demand is not so much driven by a blanket “paradigm shift” brought about by increased healthcare awareness. Instead, it is driven by more organic sociopolitical and legal structural issues such as healthcare outreach, enforceability of glove mandates as well as medical malpractice laws. These imply a slower and more gradual growth than current demand projections."

The following paragraphs are extracted from Am Investment Bank report today. The research house has turned bearish about the future glove demand, which I don't necessarily agree. But it's still good to consider its contrarian view from Margma and Frost & Sullivan.

"Post-pandemic demand projections are still overblown. We believe that the first post-pandemic year will see a flattish to negative growth in glove demand, as opposed to steady growth projections by Frost & Sullivan and MARGMA. This remains intact, as the expected fall in Covid-19 cases is postponed rather than cancelled.

We maintain our view that lasting glove demand is not so much driven by a blanket “paradigm shift” brought about by increased healthcare awareness. Instead, it is driven by more organic sociopolitical and legal structural issues such as healthcare outreach, enforceability of glove mandates as well as medical malpractice laws. These imply a slower and more gradual growth than current demand projections."

The following paragraphs are extracted from Am Investment Bank report today. The research house has turned bearish about the future glove demand, which I don't necessarily agree. But it's still good to consider its contrarian view from Margma and Frost & Sullivan.

"Post-pandemic demand projections are still overblown. We believe that the first post-pandemic year will see a flattish to negative growth in glove demand, as opposed to steady growth projections by Frost & Sullivan and MARGMA. This remains intact, as the expected fall in Covid-19 cases is postponed rather than cancelled.

We maintain our view that lasting glove demand is not so much driven by a blanket “paradigm shift” brought about by increased healthcare awareness. Instead, it is driven by more organic sociopolitical and legal structural issues such as healthcare outreach, enforceability of glove mandates as well as medical malpractice laws. These imply a slower and more gradual growth than current demand projections."

Should the fall in asset FV be partly offset by falling liabilities? But not sure about the magnitude. In the AGM they prefer rising interest rate.

No matter what, I think the interest rate change is a temporary factor. Not much effect on the long term outlook.

@Mabel,

Let's clarify how ETFs work.

Blackrock, Vanguard and the likes just follow the indices compiled by MSCI and FTSE Russell. These indices are mostly based on market capitalization.

When Serba Dinamik share price is above RM2, it's a RM8 billion market cap company. The company is in the big league indices.

Now the share price has dropped to 40 cent. The market cap has shrunk to RM1.5 billion. Given EY audit will take time, the share price is likely to languish and market cap remains tiny compared to its previous self.

These indices are reviewed regularly. When the next review comes, Serba will be found not meeting the big league index criteria and get replaced. ETF players like Blackrock and Vanguard will just dispose all their holdings in Serba. Another round of selling pressure ensues. The fate will be no different than Genting Plantation and Gamuda.

Another example, surely you know, is Supermax. Supermax got replaced by Mr DIY in KLCI index last month when its market cap drops out of the league table due to declining share price. Supermax share price still haven't recovered.

Most people know Vanguard and Blackrock are mostly passive funds. They blindly hold stocks that are in the indices according to index weights.

Later when a stock is dropped from the index, they will blindly sell as well. Just like them selling Gamuda and Genting Plantation last month.

Why use the story of Vanguard and Blackrock to convey a false impression?

I believe Allianz already complies with the 70% cap. It owns only 65% of the ordinary shares. Although it also owns 85% of ICPS, I suppose preference shares don't count since they have no voting right.

In fact I wonder if the preference share was designed with such restriction in mind. The preference share was issued in 2010 to repay a loan to Allianz SE extended to acquire a local insurer.

The non-compliance insurers are those without local listing. While Great Eastern has settled, I suppose AIA and Prudential are 100% owned by the entities listed in HK.

Just my guess.

Interesting that while institutional investors like EPF, KWAP are selling; while Karim and Awang Daud have to force sell; retail investors are offering a helping hand to buy them out.

There are just too many red flags here. Non-stop PP, record profits but poor cash flow to name just a few. If KPMG's action is not warning sign enough, the subsequent resignation of five independent directors, and how that a newly appointed chairman could quickly come to conclusion and dismissed the whole affair as "trivial" before switching to an attack mode, should have set all alarms ringing.

Even assuming it survive, fund managers will keep a distance from this company as it cannot pass their investment committee. Who will buy back the tickets from retail investors?

There are many Large Scale Solar (LSS) projects. The bidding for LSS4 have just concluded recently. Many listed companies are involved. You can google them. Just that I think it's a low margin and capital intensive business.

Petgas is domestic focus. It has four segments -- gas processing, transportation. regasification and utilities. You can check out the Annual Report. LNG sales to foreign countries by Petronas involves shipping instead of pipelines. Petronas subsidiary MISC is involved.

When I wrote Allianz ICPS distributes 20% more dividend, I actually means ICPS holders get 1.2X the dividend received by ordinary shareholders. For example, FY20 dividend is 58 sen per ordinary share, or 58sen * 1.2 = 69.6 sen per ICPS.

I just quote this as an example of dividend stocks with growth potential, among several stocks that I've commented in i3.

@Adcool, unfortunately the esceram idea was late by a year. The share price has gone up from RM0.1 to RM1 and now RM0.5. It seems to track glove stocks prices.

Just shared on Supermax forum. I thought of drawing attention to the recent CIMB Rubber Gloves sector report. CIMB analysts have done a great job in their research. This is the first time where I read Malaysian analysts doing a detailed breakdown on capacity expansion by not just in Malaysian but also overseas players.

In summary, based on published info, the Malaysia Top Four capacities will increase from 196 billion pieces p.a. from 1Q21 to 327 billion by 4Q23. This is about 67% increase over the next 11 quarters, or a CAGR of 20%.

The top three foreign players Sri Trang, Into and Bluesail are projected to expand from 51 billion as of end 2020 to 152 billion, or 198% growth over three years, or CAGR 44%. I note CIMB has excluded much of the aggressive growth plan announced by Intco.

But in Intco's place is Thailand Sri Trang which plans to grow from current 33 billion to 71 billion by 2023. In fact The Edge carried an article on Sri Trang in recent week where it plans to expand to 80 billion by 2024 and 100 billion by 2026. Currently expansion is already running in three of their Southern Thailand facilities.

As CIMB assumes demand growth at 10% per annum, the much faster growth in capacity if unchecked will result in a surplus. That’s why CIMB believes glove makers may have to delay their expansion. We shall see how the interplay of capacity expansion, ASP and profit margin play out in the coming quarters.

This is also why I prefer the most efficient players which will better withstand any possible industry shakeout while maintaining acceptable margin and profitability.

Wow. So many comments in the Supermax forum since I last visited!

I just thought of drawing attention to the recent CIMB Rubber Gloves sector report. CIMB analysts have done a great job in their research. This is the first time where I read Malaysian analysts doing a detailed breakdown on capacity expansion by not just in Malaysian but also overseas players.

In summary, based on published info, the Malaysia Top Four capacities will increase from 196 billion pieces p.a. from 1Q21 to 327 billion by 4Q23. This is about 67% increase over the next 11 quarters, or a CAGR of 20%.

The top three foreign players Sri Trang, Into and Bluesail are projected to expand from 51 billion as of end 2020 to 152 billion, or 198% growth over three years, or CAGR 44%. I note CIMB has excluded much of the aggressive growth plan announced by Intco.

But in Intco's place is Thailand Sri Trang which plans to grow from current 33 billion to 71 billion by 2023. In fact The Edge carried an article on Sri Trang in recent week where it plans to expand to 80 billion by 2024 and 100 billion by 2026. Currently expansion is already running in three of their Southern Thailand facilities.

As CIMB assumes demand growth at 10% per annum, the much faster growth in capacity if unchecked will result in a surplus. That’s why CIMB believes glove makers may have to delay their expansion. We shall see how the interplay of capacity expansion, ASP and profit margin play out in the coming quarters.

This is also why I prefer the most efficient players which will better withstand any possible industry shakeout while maintaining acceptable margin and profitability.

A note on Sunway vs Allianz ICPS. There are two differences.

One is the former has mandatory conversions in 2024 and 25. The latter is irredeemable on perpetual basis.

Second is Sunway ICPS dividend is capped at 5.25%. Holders cannot enjoy upsides like special dividend for ordinary shareholders. Meanwhile Allianz ICPS is set at 20% more than the ordinary share dividend. So it can ride on the company growth.

Hi unicorn, I just checked. According to Azmin, 2020 full year DDI (domestic direct investment) + FDI was RM164b. So far in 1H21 it was about RM100b.

https://www.malaymail.com/news/malaysia/2021/06/17/miti-expects-malaysia-to-achieve-higher-total-investments-this-year-says-az/1982972

For perspective, approved DDI was RM175b in 2014, declining to RM129b in 2019. Approved FDI was RM65b in 2014 and RM83b in 2019. So at best the recent increase in direct investment is just a recovery.

https://www.mida.gov.my/mida-news/insight-domestic-or-foreign-investment/

The other point is, the most energy intensive industries like aluminum smelting will rely on non-fossil fuel power. For example, Press Metal taps into Sarawak hydro power to produce green aluminum. At the same time, increasingly manufacturers are installing roof top solar to improve their ESG score. The latest announcement is from Top Glove.

Energy consumption growth in Malaysia will be slower than its GDP growth. This is also a trend in more developed economies. Actually future electricity demand is quite predictable as they have to be planned years ahead.

As stated in the Peninsular Malaysia Generation Development Plan agreed by the cabinet in Oct 2020,
“the net demand is projected to grow by 0.6% p.a. for 2021-2030 and 1.8% p.a. for 2030-2039. This net demand will be used for supply planning at the transmission side.” (page 5)

https://www.st.gov.my/en/contents/files/download/169/Report_on_Peninsular_Malaysia_Generation_Development_Plan_2020_(2021-2039)-FINAL.pdf

Refer Figure 5, new capacities planned until 2028 will be exclusively in renewable energy. In fact the share of gas in electricity generation will decline from current 45% to 35% in 2028 before increasing again due to coal fired plants being phased out.

For this reason, I feel that PetGas will experience weak to moderate growth in the medium term. May be this is one more reason the share comes under selling pressure in recent years.

A good dividend stock must not only have stable dividend, but earning & dividend must also grow with time. And has to be bought at a fair price.

Petgas can be considered a stable dividend stock. Not expensive. But its growth potential is rather limited. It currently pays out about 70% earning. If ROE is maintained at 15%, that means theoretically the earning growth = (100% - 70%) * 15% = 4.5%.

Some stocks have even higher payout ratio. MNCs like Nestle, Carlsberg and Heineken payouts 90% to 100% earning. Despite high ROE, growth is still limited to ~5% retained earning x ROE. Besides such stocks are rarely sold at bargain price. Certainly not now.

There might be a sweet spot for less well known, yet stable growth + dividend stocks with at least 3% to 4% dividend yield. But the stocks should have at least 10 year track record in revenue, profit and dividend growth. If the EPS (after adjusting for capital changes like bonus issue etc) has a CAGR of 10%, a 1 sen EPS ten years ago should have grown to 2.6 sen today.

If such a stock trades at say 10X PE, with 40% payout ratio, then the dividend yield is 4%. If the stock can maintain a 15% ROE in coming few years, in theory the earning could grow at (100% - 40%) * 15% = 9%, which is respectable.

There are probably not many such stocks. But this could be a good screen to shortlist some potential dividend growth stocks.

unicornbird, you can check my past comments. I discussed some of them in this forum. But I don't hold ICAP, a stock with questionable corporate governance which I've spent some time studying.

I suggest you check out the Allianz forum which I've learned a lot others. If you decide that you're interested you may consider buying the illiquid ICPS. It is traded at a slight premium than ordinary shares but it pays 20% more dividend.