Posted by observatory > 2021-06-03 15:20 | Report Abuse

@Pjseow,
You’ve mentioned in earlier comments that CNY appreciation, supposedly cheaper NBR and gas price in Malaysia etc will favor Malaysian producers.

As mentioned before, when ASP is high, when even new entrants could recoup investment within 12 months, not to mention profit margin at 50%, the impacts from all the above factors are at the margin at best.

CNY doesn’t meaningfully dent profit unless it strengthens by 20%-30% this year. If one truly believes in this possibility, should quit gloves and trade in forex instead.

Yes, Malaysia has an established NBR supply chain. But note the key producers are international firms like Korea Kumho, LG Chemical. They can have plants in Malaysia and also elsewhere. LG has a plant in Ningbo China. Intco’s own 500,000 metric ton NBR plant is under construction. It's not clear to me who will eventually has the upper hand. While China may be disadvantaged in natural rubber, it is not lack of expertise in the petrochemical industry.

Yes, Malaysia is a net exporter in oil & gas, if that is your point. But it doesn’t mean local glove makers get subsidized raw materials or energy. Besides per its annual report, Intco’s main power source is actually coal, which is a cheaper source of energy.

But as mentioned, all these factors are quite insignificant in the current context of high ASP. When everyone makes easy money, they have the cash to continue expansion.

Yes, these factors are more relevant in the long term. However, by the time when they start to bite Chinese competitors (assuming they do), the ASP would have already normalized to a level that hurt many producers, Malaysian included. When that day comes, I have no doubt Malaysian Big Four will still survive. But the super normal profits would have long gone.

The key argument in all my comments above is, an investment into glove stock doesn't just buy into next 12 months profits, but also 2nd, 3rd and years beyond that.

Question is have these been considered in the valuation?