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Trying to Make Sense Bursa Investments

Author: Ben Tan   |   Latest post: Fri, 4 Jun 2021, 12:59 PM

 

Rubber Glove Exports Rise Additional 4.75% M-o-M, 238% Y-o-Y in April

Author: Ben Tan   |  Publish date: Fri, 4 Jun 2021, 12:59 PM


Today the Department of Statistics (DoSM) released the Monthly External Trade Statistics for April 2021. Unfortunately data the department provides is reported in terms of year-on-year differences. This is not useful as last April the first full lockdown in Malaysia took place. I have been collecting the monthly data manually so that we can more easily compare the month-on-month changes. You can find it if you go to the Resources section on my blog.

In April, rubber glove exports reached RM6.7 billion in value. This is an increase of 4.75% month-on-month from March, and a 238% increase year-on-year from April 2020.
 
To put this into perspective, for the entire Q2 of 2020, in the beginning of the pandemic, the rubber glove exports totalled RM6.9 billion in value, i.e. approximately equal to the value of the exports in April 2021 alone.
 
Out of the top 25 export markets, the exports rose by the most month-on-month for the following countries:
 
Turkey: increase by 130.1%
Thailand: increase by 81%
Singapore: increase by 72.4%
India: increase by 56.2%
Brazil: increase by 32.4%
 
Additionally, and importantly, rubber glove exports rose by 7% to the United States, and by 11.4% to the United Kingdom month-on-month - the countries with the fastest vaccination rollout out of the major economies in the world.
 
Note that these figures are for the month of April 2021. Also note that this increase is from record levels in March, and after 8 straight months of increase in the value of rubber glove exports. The widely quoted quarterly report of Supermax (on which I wrote a detailed post, which you could read here) which mentioned a drop in gloves selling price, was for the financial period January-March 2021. Thus, these figures prove (again) that there has been no drop so far, even after the record levels in Q1 2021.
 
In March, MARGMA estimated the rubber glove exports of Malaysia to hit RM38 billion this year (see here). As of April, they stood at RM24.6 billion. It might be safe to say the estimate will be revised upwards.
 
Important disclaimer: Any views expressed are for informational and discussion purposes only. None of this information is intended as, and must not be understood as, a source of advice. It is imperative that you always do your own research and that you make any decisions based on your personal situation and your own personal understanding.
  3 people like this.
 
dawchok I got an insight that ASP has truly dropped from the highest $130/kpcs months ago to $70/kpcs as at last week. The sustained export value in Apr21 should be supported by the increased volume sold.
04/06/2021 2:59 PM
dawchok Besides gloves, do you have any article on other industry ?
04/06/2021 3:06 PM
Ben Tan dawchok, thank you for your comment.

Could you let me know what the $130 per 1,000 pieces price represents? Is that the price for spot orders?

At present I have focused my writings on macroeconomics, and in terms of industry - on gloves. I am finding very few other suitable investment assets, in particular in Malaysia.
04/06/2021 3:13 PM
CharlesT Posted by dawchok > Jun 4, 2021 2:59 PM | Report Abuse

I got an insight that ASP has truly dropped from the highest $130/kpcs months ago to $70/kpcs as at last week. The sustained export value in Apr21 should be supported by the increased volume sold.

If so its a sharp plunge of 40%+!!!!!!???????

Unless export vol increase by the same 40%+.....even so might not able to compensate the drops in ASP

How on earth u got the figure???
04/06/2021 3:17 PM
Ben Tan CharlesT, thank you for your comment.

My assumption is dawchok is referring to peak spot order prices. As explained in my post with analysis of Supermax's quarterly results, this does not affect the big glove companies as they are servicing standard delivery orders mostly, not spot orders. However, this does very likely affect newcomers, which predominantly rely on spot orders at present.

Just to illustrate why a drop of 45% (from $130 to $70) in ASP is impossible:

- The average rubber glove export value for Q1 2021 (if that's the period dawchok is referring to) was slightly below RM6 billion per month. This means the increase in April is by 12%.

- To compensate for a drop in average selling price of 45%, the export volume would have to had increased by 2.1 times, which is obviously impossible.

The only companies that have reported increased production volumes so far have been Top Glove - by 4 billion pieces, which is about 2.5% increase of total volume for Malaysia. Mah Sing, the only one of the newcomers that keep posting weekly updates on its new production, hasn't shipped a single order yet as far as I understand.
04/06/2021 3:37 PM
pjseow Ben Tan, thanks for your data collection again . The 4.75 % MOM increase in shipment value from March 2021 to April 2021 proved that the ASP is either tapering or a slight increase . The ASP for both Supermx , Kossan and Harta can be estimated from their last qtr revenue and estimated shipment . There are in the range of US 78 to 89 per 1000 pcs . In Supermx last QR briefing , the management clearly told the Analaysts that the ASP for JAN/Feb/ March were US 84.6/87.65/89.2 respectively . This is the normal shipment prices from its contractual agreements . The management also explicitly mentioned that the ASP for this qtr ( April, May June ) will be between US 80 to 110 . It also mentioned that the spot price has came down to US 70 to 80 . The shipment for April could be slightly higher but not a lot because the production shutdowns for both Harta and Supermx were in Feb not March . Topglove shutdown was in DEC last year .

It is very unlikely that the shipment qty grew more than 40 % from March to April to comnpensate for the assumed ASP drop of 40 % drop in April from March.
04/06/2021 4:56 PM
CharlesT Seems only one direction for glove...Hollanding
04/06/2021 4:59 PM
Ben Tan dawchok, in this case your information is most certainly wrong, as explained above.

pjseow, thank you for your comment. Note that exports have to double (not merely increase by 40%) to compensate for a 45% drop in ASP (as suggested by dawchok). This is obviously impossible.
04/06/2021 5:10 PM
George Leong Thanks Ben Tan for the analysis and sharing of info.
04/06/2021 5:52 PM
dawchok Ben : 6.7 bil is value of Apr, +4.75% comparing to value of March, not comparing to the month with asp 130(monthS ago, plural= many months). Thus 40% or 45% are out of the context.

The sustained export value in Apr21 vs. those of Mar should be supported by the increased volume sold in Apr vs. those of Mar with the asp dropping month after month particularly from Mar to Apr for this context.
04/06/2021 6:20 PM
Ben Tan dawchok, thank you for the clarification. However, the math doesn't work. No matter how many months ago, volume of exports cannot have increased more than twice by April (or by today, for instance) to justify a difference of 45% in average selling price, because there simply hasn't been that much capacity expansion.

It is possible that $130 has been a momentary spike, for instance at the time Top Glove's factories were closed. That is not ASP though. Over the past several months, ASPs for Supermax and Top Glove, the companies that raised their selling prices the most, have been in the range of $80 to $100, with ASPs of Kossan and Hartalega slightly lower than that and gradually increasing to the March/April level of ~$80.

With all that being said, it is possible that in March/April selling prices across all Malaysian exporters have peaked, at a little over $80 (average), and they will start gradually going down hereon after. It is possible that ASPs in June will be in the range of US$70+.
04/06/2021 9:35 PM
dawchok Ben : Do not take my info too seriously and sorry for the confusion.

I called up to tease him that he made tonne of profit from this pandemic. He answered that "no lah, the asp has dropped to 70. The earlier highest 130 was great but it had come down."
Then I said " you still make tonne of profit at 70 after factoring the incremental cost of NBR latex."
He said " no lah, when asp at 130, NBR latex was >5000/tonne. Although it has now dropped to ~3000/tonne."
I asked " is 70 a spot price or for normal customer?"
He answered: "normal customer."
I did not ask if 130 was a spot price or for normal customer as I just want to dig info of the latest asp.
04/06/2021 10:16 PM
Ben Tan dawchok, thank you for the additional details. Anecdotal information is dangerous to use in situations like these. I remember for instance rumours were spread before last quarter results announcement by Top Glove that the results were going to be very bad. Overall, we can trust the actual financial reports of companies, information they provide during post-report briefings, and information from official related bodies (such as MARGMA for instance).

The economics of each of the players in an industry are different. Manufacturing is almost inevitably a size business, so smaller players struggle more in volatile environment, especially with added competition for limited market share and supplies. That would be my read of the story your friend has told you. I trust that the price has spiked to $130 at some point, which is very likely to have been in December when half of Top Glove's factories were closed, but that has been very temporary and overall inconsequential.
05/06/2021 10:49 AM
Brutus @Ben Tan, thank you for the analysis. Too many just focuses on the ASP without taking into accounts the increased in capacity by all the manufacturers. Two ways to increase revenue/profit, ie higher price or more pcs or better still both!
Guess we do not have to wait for long to see as TG is releasing the QR this coming 9th June. SMX and Harta QR to many was disappointing but Kossan surprises many as with Careplus and Rubberex.
05/06/2021 10:50 AM
Ben Tan Brutus, thank you for your comment.

I have recently published an article on future market share estimates in two different scenarios, depending on how eager/honest Intco are in their expansion plans. You can read it here: https://bentanmy.com/future-market-share-and-export-markets-of-malaysian-glove-makers/

My general thesis is that the companies that managed to capture peak selling prices (specifically Top Glove and Supermax) will be able to expand the fastest, so the offset of declining selling prices will come from added capacity. The offset won't be so significant with Hartalega or Kossan, but with Intco evidently experiencing problems, and with the glove companies' prices falling, value has started to emerge there with these two companies as well in my view. In particular, Harta slid very sharply recently, which makes it attractive in my view.
05/06/2021 3:55 PM
Brutus Ben Tan, the big boys will always be ready to capitalize on the "demand" situation. Just look at TG additional capacity announced recently. I personally do not worry much about Intco (not to say look down on them) but our established big 4 will definitely take some beating to dethrone them.
Case in point, Kossan recently acquired land in Bidor is the same size as Bandar Sunway. With the amount of profits all glove manufacturers are pocketing, they need not worry about insufficient funds. In comparison, land size alone Kossan's land in Bidor is about 6-7x larger than Hartalega's NGC. Best thing is nobody mentioned about this piece of land and everyone thought is build a plant new door approach will do!
05/06/2021 8:38 PM
Supermax2020 No wonder EPF keeps on buying gloves shares like topglove, kossan and harta! ePF already have the data!
06/06/2021 1:51 PM
ks5S epf going to sell serba and put into glove stock to recover its loss
06/06/2021 3:36 PM
Ben Tan Brutus, Supermax2020, ks5S, thank you for your comments.

Brutus, a sign of how misinformed the market is, is the fact that these expansions are actually seen as a negative thing. This is the first time I see manufacturing capacity (not raw material production) expansion seen as a negative. It appears that the market thinks literally every business owner investing into medical glove production capacity has no idea what he is doing.

Supermax2020, EPF has been doing that for a while now. Unfortunately, when the price rises just a little bit, they start selling. It is a smart move, because it helps them dampen expectations even as the overall market interest is rather muted. It's a well-executed move to increase their shareholdings of gloves at cheaper price than they should be able to.
07/06/2021 11:54 AM
farisfx54 MR BenTan yang terbaik
07/06/2021 11:11 PM
Foker Definitely negative
09/06/2021 1:25 AM
Foker They are starting to project an oversupply of around 40% by 2023.
09/06/2021 1:29 AM
Foker It will take years to get back to a favourable demand supply balance
09/06/2021 1:30 AM
Foker Meanwhile they will have to sell substantially below cost to reduce the loss from fixed cost.
09/06/2021 1:31 AM

Future Market Share and Export Markets of Malaysian Glove Makers

Author: Ben Tan   |  Publish date: Tue, 1 Jun 2021, 10:07 PM


I posted a new article on my blog, you can find it here:

Future Market Share and Export Markets of Malaysian Glove Makers

It would be useful if you are considering the different glove companies, as it provides a comparison on relative market share by the end of 2022, and a breakdown of the export markets for each individual company:

 

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Ben Tan: Starting My Own Blog

Author: Ben Tan   |  Publish date: Tue, 18 May 2021, 1:45 PM


I started my own blog. You can find it here.

I have been considering this for a while now and I decided to take this step for a few reasons:

1) Better quality.

Currently my website's design is simple, and there are very basic functionalities available only. However, I plan to invest into making it a more pleasant-looking place. At the same time, i3 offers extremely limited capabilities as far as writing is concerned, and sometimes this makes sharing information in a well-structured manner exceedingly difficult.

2) Better control.

I have long been having problems with the post tagging function on i3. There is no way for a post to be tagged by the author. Instead, I have to wait for an administrator to tag a post accordingly. Frequently, posts have remained untagged for a few days (or not at all), which decreases their visibility to the point where they cannot be found unless one knew they were there. Additionally, trolls frequently destroy the otherwise constructive discussions that have occurred in the comments section of some of my posts. There isn't much I can do to prevent that on i3, unfortunately.

3) More flexibility.

There is information I want to share, which is not necessarily in the form of articles. For instance, on my new website I have a Resources section, where I share data on different matters I consider important. This data is, by nature, in static format, so it cannot be shared as an article. Additionally, some information is meant to be in the form of notes, rather than articles. I will be sharing such notes with subscribers to my blog.

4) Subscription feature.

The i3 website doesn't provide a subscription feature, which is regrettable. Some people like to stay informed on when some of their favourite authors post something new, or when someone responds to their comments. This, coupled with the aforementioned problems with i3, makes it very hard to justify the experience here.

No fees.

I don't plan to charge for the use of the information I share on my blog, or via subscriber notes. As I have mentioned before, I believe in sharing information freely, and in building relationships. Earning from writing has never been my primary goal. For instance, since I started writing a few months ago, I've had an information sharing call with the VP of Research at Frost & Sullivan, one of the biggest business consulting and market research companies in the world. Thus, if one day my sharing of my personal research, analysis, and thoughts, leads to something more, that will only be a bonus.

If you would like to receive updates when I post something new, if you would like to get my private notes, or if you would simply like to stay in touch, please feel free to message me here, or via email at:

bentanblog@gmail.com

Stay safe,

Ben

  3 people like this.
 
farisfx54 MR BenTan yang terbaik aclass obove tq
07/06/2021 11:34 PM
Albukhary Support Ben Tan
08/06/2021 12:26 AM
elbrutus go for it bro ...u r can !!!
08/06/2021 12:30 AM

The Enigma Supermax

Author: Ben Tan   |  Publish date: Sat, 15 May 2021, 4:35 PM


This article was transferred, and you can find it on my personal blog:

The Enigma Supermax

Labels: SUPERMX
  13 people like this.
 
Steventeh99 Stop dreaming. As a listed company. They won't simply come out with these asp statement.
16/05/2021 10:17 AM
Airline Bobby Dude. No need to try and shill to people. Cut your losses, glove game is over. Wanna rarn back. Faster go in lctitan befote uncle koon wtite an article bout it!. Done
16/05/2021 11:51 AM
gemfinder Scam management ma. Can write story oredi. Last q said the best is yet to come. Now said asp downtrending.
16/05/2021 11:54 AM
gemfinder Waterfish lubang, go back to your lobang la
16/05/2021 11:55 AM
gemfinder Waterfish fortune, go back to your lobang la
16/05/2021 11:56 AM
pjseow Ben Tan, thanks for your article and follow up on supermx after the QR .
There was initial confusion on the ASP drop but when I read the TA, Nomura and Affin Bank Analysts reports , it became clearer that the 15 % to 25 % drop did not affect last qtr result and also the next 3 qtrs .

Nomura report provided the clearest ASP trends . The statement " Blended ASP per 1,000 pcs for Jan/Feb/Mar was USD 84.6 / 87.65/89.2 clearly and obviously showed an uptrend but at a slower rate . The peak would either be in March or April after ASP started to taper off and drop.

With the information of RM 330 m revenue loss due to Meru shutdown , we can derive the ASP for last qtr fairly accurately . If we add back this RM 330 m to last qtr revenue of RM1938 million or RM 1.938 billions , the total revenue would have been RM 2.268 billions. Since we know the capacity of supermx in last qtr was 26/4 or 6.5 million . Assuming utilization of 95 % , Supermx would have shipped 6.175 billions pcs with a revenue of 2.268 billions if there was no meru plant shutdown . THE ASP was calculated to be at US 88.5 assuming exchange rate of 4.15 last qtr .

With the information that the ASP for April /May/June will be in the range of US 80 to 110 , we can take the mean or average which is US 95 which is still higher than last qtr of RM 88.5 . THe average could be lower because there could still be some spot sales in this qtr which is lower at between US 70 and 80 which may pull down the contractual agreement prices which was set earlier but deliver in this qtr .
Since there was information that Supermx had its order booked until end of the year , we can also deduce that the ASPs of 2H of CY 2021 would be in the US 80 plus range with leadtimes still hovering at 6 to 7 months .
I think the Supermx briefing to the anlaysts are sufficiently for us to roughly know what to expect for the earnings of the coming 3 qtrs .
The US 70 to 80 ASPs will hit the revenue and earning for CY 2022 as all new contractual agreements will be negotiated with this new pricings . By then, supermx capacity will grow from 26 billions per year to 36 billions per year .
16/05/2021 1:06 PM
DickyMe All these number crunching, curve fitting analysis and connecting the dots will not work in a chaotic, sensitive, and at times irrational, market. The fact is glove is certainly losing it's glamour.
16/05/2021 1:10 PM
wbwanabe Thank you Ben. Great analysis as usual! I would rather keep Supermax shares for the next 10 years than gambling on penny stocks or those that doesn't have recovery prospects in the next few years. At least I am assured my capital is still there plus getting consistent dividends that is higher than FD.
16/05/2021 3:17 PM
treack Thanks for the great analysis Mr Tan.
My only question here is that if the management came out with a statement that is totally incorrect ( asp dropped between 15-25%), shouldn't it be at least redacted by the management?
16/05/2021 4:38 PM
pjseow Dicky , Which statement and analysis are fitting analysis and connecting the dots ?

Statement " Blended ASP in Jan/Feb/March are USD 84.6 / 87.65 / 89.2 " are real numbers provided by Supermx to the Analysts during their briefings .

Statement " Supermx has orders booked until the end of this year with advance payment ( 30 - 50 % of order value in some cases ) collected " is also factual.


Statement " Its contractual orders in hand will help avoid any drastic fall in ASPs for the rest of the year " is also factual .

Also statement like April --June quarter ASP is likely to be in USD 80 - 110 is also real number provided by Supermx .

The above statements are factual not chaotic as described by you .


Chaotic are situations when too many naysayers giving numbers without basis .
16/05/2021 4:40 PM
Michael Kwok People talk about future ASP price for glove.Really got drop.Base on futures contract.Total profit did not drop due to the volume profit cover the drops.
16/05/2021 4:43 PM
pjseow Ben Tan , Thanks for explaining how the tax credit incentives of US 482 billions will benefit Supermx in longer term . Many investors may not realised such incentives and complained that about the higher cost of manufacturing in US .The value of Customer Intimacy and the proximity of supplier to customer is a plus to customer royalty and ensuring future repeat orders . With such tax incentives , the investment of US 550 is almost " free " .
16/05/2021 4:49 PM
FairTalk A very well written and top notch article. All investors and shareholders of Supermx must read. We are very happy with the solid fundamentals of Supermx. At this very difficult economic situation how many counters at Bursa has the enormous cash pile of Billions of RM. Equally very excited with the forthcoming Supermx investment and opening of factories inside USA which is the largest and most lucrative gloves market in the world. Thank you very much Ben.
17/05/2021 11:14 AM
Ben Tan Thank you everyone for your comments.

pjseow, my calculations on actual ASPs are very similar to yours. I am a little more conservative and I believe for next quarter blended ASP will be between $85 and $90, i.e. approximately flat q-o-q. With no unforeseen closures, and no unannounced donations, that should result in approximately RM2.3b to RM2.5b revenue from sales for the quarter.

Regarding cost of manufacturing in the US, it is undeniable that the costs will be higher, specifically in terms of labour and potentially in terms of raw materials. The question (and why more clarity on the endeavour is needed) is if the incentives will offset the extra operating costs. Additionally, in terms of logistics, the costs will be lower, which would be beneficial to Supermax's OBM business. Natural gas price in the US is competitive, too.
18/05/2021 1:13 PM
02/06/2021 9:16 PM

Debt, Money Printing, and Inflation: The Economics of a Pandemic (Part 2)

Author: Ben Tan   |  Publish date: Sun, 9 May 2021, 3:24 PM


This article was transferred, and you can find it on my personal blog:

Debt, Money Printing, and Inflation: The Economics of a Pandemic (Part 2)

  3 people like this.
 
Imagine333 Brilliant
09/05/2021 3:35 PM
stockraider Yes buy what u understand loh!

Remember 2 of the world most richest & savvy investors w.buffet & bill gates like investing in farmland now mah!

U can emulate them now too mah....!!

Thats why the 2 richest savvy investors have taken note the point of concern that palmoil & commodity price cannot going up forever like the case of glove & eventually the commodity price will also fall 1 day mah!

To address this issue or concern w.buffet & bill gates, say buy farmland & palmoil plantation, even the commodity price fall, u still have great protection on the value of cheap plantation land & farmland mah..!

If u buy into cheap land, u have both margin of safety accorded by cheap land plus prospect of reaping great profit from high palmoil price loh!

Thus u should Quickly Buy into palmoil plantation now, b4 its price shoot up mah!

Time to be a little bit more contraian in view of mkt at reasonable high level mah!

Warren buffet says inflation is definitely coming in view of low interest interest and speculative sign such as bitcoin, rubbish stock price run up sky high and unrealistic stock valuation & expectation and now raw commodities price run up mah!

Bill Gates already bought alot of farmland at low in preparation & in anticipation for the coming armmagedoom coming mah!
Why would one the world tech best richest owner switch alot of his investment into farmland, this bcos farmland or value real estate if it is bought at reasonable low price, u cannot go wrong over longterm bcos the availability of land is limited, u cannot manufacture land like bitcoin mah!

Coming back to msia the equivalent to farmland is oil plantation, u still can get it real cheap & it is paying u reasonably good dividend loh...this is the best defensive & offensive play like bill gates and warren buffet had highlighted mah!


As calvin sifu said timber is at record price & palmoil at record price surely some optimism will spillover to plantation & timber share price mah!

But this up 1 to 2 sen is chicken feed mah, why up so little leh ??

Timber & palmoil share r suffering from lack of production mah and also huge impairment losses on its assets mah & previous falling share price mah!
Thus they are jittery on recovery of palmoil & timber share loh!! They want to see actual profit b4 jump in loh!!
That means if u base on profit...as indicator that means the share price will be lagging loh!

Then why promote Wtk leh ??
1. The owner , directors and insiders already accumulating quietly without fanfare mah!
2. The palmoil & timber production volume of wtk, mhc, jtiasa, boustead, ijm plant already creeping up loh...this is further support by the record price of its commodities. Just imagine u have higher prices & higher volume....that will be a very important sign of higher big profit coming mah!
3. The share price already corrected over 3 yrs of downtrend previously, when there is a big shakeout of all the weak holders...u can only grow more optimistic as time past by loh!
4. Wtk is sitting on some prime land that invested at a very low cost near major town & city, they are good development mah!
5. With all the liquidity & quantitative easing & low interest rate environment, u can see big inflation will be coming loh...!! Wtk in commodities business plus very big cheap land bank is a very good inflation protector mah!

Based on the above i think wtk , jayatiasa & ijmplant is the best pick to make profit & this is concur by sifu calvin findings also mah!

Posted by pjseow > May 8, 2021 6:08 PM | Report Abuse

Calvin and Ahbah , Investment timing is very important and be at least medium and long term horizon . Dont buy at the peak . Gloves stocks had came down 50 to 60 % from the peaks in August last year . I did not promote glove counters then because the earnings were still not proven , PE were high . Glove stock prices peak before its ASP peak . There was a 9 months to a year lead of the share prices over its ASPs . Glove stocks had finally PROVEN to deliver fantastic results in the last 3 qtrs after August 2020 while their prices came down 50 % . THeir PE are less than 5 while they will continue to deliver superb results in the next few years with double and tripling of capacities . The palm oil price cannot keep going up forever since it started picking up 2 years ago in 2019 .Likewise , the oil palm counters will peak soon or already peak now before its palm oil ASP peak which may happen in 3 to 6 months time or even earlier . When palm oils ASP came down finally , do the plantation counters have doubling of capacities to compensate for the drop in ASPs ?
09/05/2021 3:59 PM
observatory Ben, thanks for your article on the important topic of inflation outlook.

My view is the inflation expectation in US has gone up mainly due to optimism about reopening of economy. 45% of US population has received at least one jab, way higher than many have expected just a few months ago. Daily confirmed cases have dropped from a peak of 25k to less than 5k now.

https://ourworldindata.org/covid-vaccinations
https://ourworldindata.org/coronavirus/country/united-states

Higher inflation expectation is also encouraged by the Fed with its plenty of patience in holding off rate hike. In Aug 2020 the Fed has announced that instead of targeting 2% inflation, it would target inflation that AVERAGES 2% over time.

While the Fed is silent on how long is the average duration, most people believe the Fed would be sanguine to let inflation runs to say 3% in the coming quarters to compensate for the shortfall in earlier period. This could help to put the economy on a firmer footing. This would reduce deflationary risk due to frequent undershooting of target in the last decade.

Besides a little push on the wage increase helps to reduce income inequality in the US. Inequality has been feeding the dangerous populist sentiments and creating a fertile ground for demagogues like Donald Trump.

Yes, there is a risk that the Fed monetary policy, coupled with Biden's expansionary fiscal policy, could bring back double digit inflation like what happened in the 70’s.
https://tradingeconomics.com/united-states/inflation-cpi

But so far there is little evidence of wage-price spiral that was necessary for persistent high inflation. Higher wages is the key to high inflation given close to 80% of the US economy is contributed by services. As long as wage growth remains moderate, as many expect it to be, the commodity price rise in crude oil, copper, lumber and so on is likely to be transitionary. Besides, technological advances are deflationary in nature given it replaces manpower.

I note that not even Larry Summers, who has strongly criticized Biden’s stimulus, has boldly predicted the comeback of high inflation. Summers has covered himself with plenty of ifs.

In fact if one were to believe in the market verdict, participants in the Treasury market bet with their money that the US inflation rate 5 years from now is 2.3%

https://fred.stlouisfed.org/series/T5YIFR

Of course, a 2% to 3% inflation rate in US does not provide comfort for Malaysians if we experience much higher inflation.

Looking at Malaysia past situation, normally the risk of high inflation comes from sharp depreciation of the Ringgit, especially during a financial crisis which leads to capital flight.

That’s why I don’t agree with your view that a person living in Malaysia should focus his investment in Malaysia. I believe a healthy dose of diversification out of Malaysia is important. Not necessarily just US, or China for that matter. For example, a typical retailed investor may invest in good track record unit trusts that invest in the region or even globally. Better still, dollar cost averaging into low-cost ETFs that track US, European and AP market.

But there is a more important decision than selecting which share market, which sector or even which stocks. A well thought through asset allocation plan is crucial to help investors ride through all market conditions. So to me the most important decision is the percentage allocation into cash, equity (foreign and local), bonds, real estate and even precious metals.

Take three typical scenarios that associate with the inflation rates:
1) Deflation (negative inflation) – as experienced by Japan in 90s and 2000s, or by HK in late 90s and early 2000s. Government bonds will outperform (but this does not apply to developing country government bonds given the tendency of capital flight). Cash is an alternative option

2) Mild inflation – like most of the years in US from 80s and now. Actually S&P 500 return since 1980 is about 100 folds!

3) High inflation – Not just bonds and cash, but stocks will suffer too, as most companies cannot pass on cost increase fast enough. It will be even worse during stagflation, where companies also suffer from weak demand. When there are fears about debasement of fiat currencies, I believe gold will make a comeback. Gold has not only been tested in the 1980s high inflation period, but also in many war periods centuries ago.

As for cryptocurrencies, I believe it is an expression of easy liquidity today. When there is a systemic risk that the world is falling apart (though very unlikely in my view), individuals as well as country central banks will prefer to hold physical gold rather than Bitcoin, Ethereum, not to mention dogecoin, as they all rely on a functionating Internet to verify transactions!
09/05/2021 5:43 PM
Ben Tan Imagine333, stockraider, observatory, thank you for your comments.

observatory, I feel like we are running a little bit off-topic again. I explained in the first part of the article why the underlying depreciation of certain currency (among them, chiefly the USD) is unquestionable. You can read it here: https://klse.i3investor.com/blogs/bursainvestments/2021-05-01-story-h1564229949-Debt_Money_Printing_and_Inflation_The_Economics_of_a_Pandemic_Part_1.jsp

If The Fed, or Treasury holders, have positioned/prepared properly for that inflation, or if The Fed is simply trying to calm down the markets, is beyond the point. The real question, which cannot be answered as it is largely politically-related, is when and how quickly the underlying depreciation will get resolved and will start showing up in official statistical data.

You make a very valid point on political risk in Malaysia, which I believe is a more serious problem than a financial crisis as it is isolated to the country itself. However, political risk is by its nature very hard to estimate and predict. There has been a significant amount of depreciation in the value of the MYR over the past several years (since 1MDB), and a significant outflow of foreign investment from the country. My belief is that it would be hard for the process to exacerbate further at this point. A non-elected government has been moving the country through the biggest pandemic in a century after the ruling coalition disbanded. It hardly gets worse than that. Thus, my view is that the downside on the political risk side is generally controllable hereon after.

The real elephant in the room is the aforementioned underlying depreciation in the currencies. I have briefly looked at the figures for other countries, and I can see that as far as money supply expansion goes, Malaysia has been on the very conservative side as compared to most other countries. Thus, I am very comfortable with my MYR denominated holdings so far.
09/05/2021 10:21 PM
stockraider Dear Ben,

Earlier ur presentation abit long winded, Raider has trouble grasping what is ur point loh ? Since I notice u want to talk like an economist, General Raider will speak at your language loh!

U mentioned the following important point loh!

1.Severe Disruption in world economy due to covid19 & lockdown
2. The strategy adopted to cushioned the impact is thru interest reduction & quantitative throughout the world loh!
3. Usa & europe has printed 29% & 18% more monies yet USD depreciate only 6% v excess money printing, that means alot of hidden inflation ?
4. The majority of the Quantitative easing & Govt financial support have gone into the People personal savings instead into spending.
5. Keynesian theory says we must spend b4 we can kick start a major recovery & but beyond that will create an inflation loh!
6. MYR will not depreciate much compare to USD bcos we have printed currency only 6% v 29%
09/05/2021 10:47 PM
stockraider When the severe covid19 & lockdown hit the major western countries, alot of people are anticipating Great economic impacts and severe stock market crash that are more severe than The Great Depression in 1929 & Great Recession in 2008 loh!

But luckily most Government chose option 3 that are quantitative easing & sharp monetary interest reduction throughout the world mah!
These strategy prevented complete collapse of the stockmarket & the severe negative impact of recession due to the lock down & averted the unrest of people throughout the world due economic hardship loh..!
General Raider still thinks that this is the best tools adopted by the govt coordinating throughout the world loh!

Yes there are many job losses due to business collapse but the govt has created safety nets through handout plus job support directly plus lowering the interest rates drastically through quantitative easing as a result most economy did not freeze thus avoided recession or worse a depression loh!
We must bear in mind most of the western world had very high rate of borrowing, if the govt had chosen option 1 or 2 the world will be a dead duck and the whole world stock market & business will severely collapse & we will be in for another Great Recession just only 12 years after the previous Great Recession in 2008.
Bcos of the Govt action the impact on the economy, business and stock market have been very much milder than expected loh!
09/05/2021 11:11 PM
stockraider the quantitative easing throughout the world are as follows USA has printed extra 29% monies, Europe 18% and Msia 6%....plus countries like Japan, China & others loh!

Beside quantitative easing the monetary interest of Usa were brought down to zero, Europe negative interest And Japan negative interest this in a way help the climate of business, investment and stock market with lower cost of funds thus in a way alot of business avoided bankruptcy and stock market complete collapse bcos liquidity & credit are available loh!

The negative consequence of quantitative easing is latent inflation and currency depreciation loh! But this did not happen loh!
Firstly the liquidity & handout & support the Govt the recipient use these resources to paydown debts, for investment and for saving for the rainy days loh!

2ndly There are not much opportunity to spend, the world is in a severe lockdown & people fear losing their jobs there are little incentive to be any big spender Mah!

3rdly since no one are really spending big & some business are closing down most country did not experience inflation in fact there are mild disinflation for the 1st few months loh!

As a result the stockmarket benefited as the return on equity are very much higher than the meagre return putting monies in the banks.

Then when will inflation, currency depreciation and lost of productivity due business closure really strike leh ?
09/05/2021 11:35 PM
stockraider Since Usa printed 29% more of its monies and Europe print 18% more and msia 6% why usa currency did not really fell agst msia and why Europe with negative interest rate , its currency did not collapse leh ?
In fact europe the currency appreciated instead loh!

As for Usa the currency did not really depreciated agst msia despite Usa print much more than msia leh ??

U see valuation of currency is quite unique mah!

There are many factors affecting exchange rate these includes;
1. Confidence & rating
2. Govt Policy
3. Interest Rates
4. Inflation
5. Purchasing Power parity
6. Balance of Payment & Reserves it hold
7. Economic power of the country

Thus despite USA score badly on printing monies despite it has appreciated alot previously b4 QE, it has not depreciated much agst msia post QE maybe say 1% to 3% down, this is mainly due to msia credit rating was downgraded from A- to BBB+ loh!

Going fwd RM wii be volatile if u look at the 8 factors affecting MYR loh! Any of those element will impact the exchange rate mah!
09/05/2021 11:51 PM
stockraider Thus when will rapid inflation going to hit us leh ?

U see Keynesian theory says u need to spend money b4 economic growth kick in & eventually lead to inflation mah!

If u hoard cash, pay down debts and refuse to commit on spending all these are disinflationary mah!

Right now only the Govt are really planning to spend big loh!

If u look at Covid 19, we are already been thru more than 1 yr...right now we actually at phase 3 the emerging recovery phase, where vaccine are here and the world already not so fear of covid 19, bcos we now understand more of it loh!

We are getting ready for the world economy to open up soon loh..!
Raider see somewhere July to Sept the world economy will open up with a very big bang and inter country will be allowed to travel loh!
That will means big spending will come and people will spend very big with revenge in mind loh!

Tokyo olympic in July, will be the beginning of the open up phase loh!

Now as for inflation it is already on its way here loh!
All commodities Food like soya bean, corn, wheat, palmoil all ramp up. Industrial products like copper, alum, steel, lumber, oil, resin, chemical all begin to move up high in tandem mah!

Freight cost had already move up sky high loh!

Eventually all these will translate to inflationary pressure & higher price on our consumer products in the form of cost push inflation, General Raider expect this is somewhere December 2021.

The next Stage will come in the form of demand pull inflation in the form of revenge spending where excess demand overwhelm supplies that will be by June 2022 loh!

The stockmarket will have 1 big leg of continuous run up until December 2022, in which by then whole world will start to take action to prevent rampant inflation loh!
10/05/2021 12:19 AM
stockraider The best strategy to prepare for rampant inflation when it hit us in msia is to invest in palmoil plantation loh!

Yes buy what u understand loh!

Remember 2 of the world most richest & savvy investors w.buffet & bill gates like investing in farmland now mah!

U can emulate them now too mah....!!

Thats why the 2 richest savvy investors have taken note the point of concern that palmoil & commodity price cannot going up forever like the case of glove & eventually the commodity price will also fall 1 day mah!

To address this issue or concern w.buffet & bill gates, say buy farmland & palmoil plantation, even the commodity price fall, u still have great protection on the value of cheap plantation land & farmland mah..!

If u buy into cheap land, u have both margin of safety accorded by cheap land plus prospect of reaping great profit from high palmoil price loh!

Thus u should Quickly Buy into palmoil plantation now, b4 its price shoot up mah!

Time to be a little bit more contraian in view of mkt at reasonable high level mah!

Warren buffet says inflation is definitely coming in view of low interest interest and speculative sign such as bitcoin, rubbish stock price run up sky high and unrealistic stock valuation & expectation and now raw commodities price run up mah!

Bill Gates already bought alot of farmland at low in preparation & in anticipation for the coming armmagedoom coming mah!
Why would one the world tech best richest owner switch alot of his investment into farmland, this bcos farmland or value real estate if it is bought at reasonable low price, u cannot go wrong over longterm bcos the availability of land is limited, u cannot manufacture land like bitcoin mah!

Coming back to msia the equivalent to farmland is oil plantation, u still can get it real cheap & it is paying u reasonably good dividend loh...this is the best defensive & offensive play like bill gates and warren buffet had highlighted mah!


As calvin sifu said timber is at record price & palmoil at record price surely some optimism will spillover to plantation & timber share price mah!

But this up 1 to 2 sen is chicken feed mah, why up so little leh ??

Timber & palmoil share r suffering from lack of production mah and also huge impairment losses on its assets mah & previous falling share price mah!
Thus they are jittery on recovery of palmoil & timber share loh!! They want to see actual profit b4 jump in loh!!
That means if u base on profit...as indicator that means the share price will be lagging loh!

Then why promote Wtk leh ??
1. The owner , directors and insiders already accumulating quietly without fanfare mah!
2. The palmoil & timber production volume of wtk, mhc, jtiasa, boustead, ijm plant already creeping up loh...this is further support by the record price of its commodities. Just imagine u have higher prices & higher volume....that will be a very important sign of higher big profit coming mah!
3. The share price already corrected over 3 yrs of downtrend previously, when there is a big shakeout of all the weak holders...u can only grow more optimistic as time past by loh!
4. Wtk is sitting on some prime land that invested at a very low cost near major town & city, they are good development mah!
5. With all the liquidity & quantitative easing & low interest rate environment, u can see big inflation will be coming loh...!! Wtk in commodities business plus very big cheap land bank is a very good inflation protector mah!

Based on the above i think wtk , jayatiasa & ijmplant is the best pick to make profit & this is concur by sifu calvin findings also mah!


Posted by pjseow > May 8, 2021 6:08 PM | Report Abuse

Calvin and Ahbah , Investment timing is very important and be at least medium and long term horizon . Dont buy at the peak . Gloves stocks had came down 50 to 60 % from the peaks in August last year .
I did not promote glove counters then because the earnings were still not proven , PE were high . Glove stock prices peak before its ASP peak .

There was a 9 months to a year lead of the share prices over its ASPs . Glove stocks had finally PROVEN to deliver fantastic results in the last 3 qtrs after August 2020 while their prices came down 50 % .

THeir PE are less than 5 while they will continue to deliver superb results in the next few years with double and tripling of capacities .

The palm oil price cannot keep going up forever since it started picking up 2 years ago in 2019 .Likewise , the oil palm counters will peak soon or already peak now before its palm oil ASP peak which may happen in 3 to 6 months time or even earlier . When palm oils ASP came down finally , do the plantation counters have doubling of capacities to compensate for the drop in ASPs ?
10/05/2021 12:24 AM
Ben Tan stockraider, that's a lot of text, sometimes really hard to read or follow (it seems like it's a collection of copied texts from somewhere else?).

In any case, the exchange rate of a currency depends on a myriad of factors which in normal times cancel each other out to a large extent, so that the currency exchange rate rarely swings in either direction, except for during major cataclysms. Such a cataclysm is an increase in the money supply to GDP ratio by close to 30%. Another potential cataclysm in the making might be a sharp increase in taxes, which is expected to happen in the US.

The rest of your comments are explained and covered in the two parts of the article.
10/05/2021 3:15 PM
observatory Hi Ben, thanks for your reply.

I didn't read Part 1 of your article earlier until you pointed out above. I just read up and commented. We could continue our discussion there if you wish to.
11/05/2021 6:25 PM
bpsiah 2) In order to be of attractive valuation, the company would need to have a forward P/E (as quoted by The Edge based on Bloomberg data) higher than the P/E ratio as of March 19, 2020.

Ben, why higher P/E ratio here? Can you elaborate?
Thanks for the sharing.
16/05/2021 6:14 PM
stockraider What they actually mean better Pe ratio or lower Pe ratio, it is a misquote mah...!!


Posted by bpsiah > May 16, 2021 6:14 PM | Report Abuse

2) In order to be of attractive valuation, the company would need to have a forward P/E (as quoted by The Edge based on Bloomberg data) higher than the P/E ratio as of March 19, 2020.

Ben, why higher P/E ratio here? Can you elaborate?
Thanks for the sharing.
16/05/2021 6:41 PM
bpsiah Tq Stockraider
16/05/2021 10:43 PM

The ASP Conundrum: Supermax and Hartalega Quarterly Results Notes

Author: Ben Tan   |  Publish date: Thu, 6 May 2021, 4:47 PM


While we are still waiting for additional management guidance from Supermax, specifically on utilisation rate during the quarter, today a prominent Malaysian investment analyst for whom I have great respect, wrote an interesting piece on why what is happening with Supermax is not representative of what might be happening with Hartalega, Kossan, or Riverstone. For once I didn't like the taste of that write-up, as I don't believe it's nice to kick someone when they are down, as is the case with Supermax (down 12% as of writing this post).

The ASP Conundrum

One of the key points in yesterday's QR announcement of Supermax which was broadly publicized and stressed on (see for instance here) was the following:

"As more new capacity is available in the market, the global glove prices have begun to decrease. The glove prices have since dropped by between 15% to 25%. Currently, the Spot market prices are lower than the contracted prices."

Unfortunately, as Malaysian companies are not required to disclose such information with their quarterly reports, it is hard to gauge the average selling price (ASP) for the quarter without knowing the utilisation rate. Additionally, the wording is confusing (intentionally or not) and that is why I haven't written yet any more detailed analysis on Supermax's quarterly results.

However, from the report itself we get a few extra pieces of information on the current and future profitability of the company, which are important:

- The company donated RM75 million worth of gloves to the Malaysian government, which was recognized during this quarter;

- The inventories increased from RM363 million to RM623 million, or by RM260 million quarter-on-quarter;

- Cash on hand increased from RM3.7 billion to RM3.99 billion, or by RM290 million quarter-on-quarter;

- In total, the current assets increased by approximately RM830 million, while current liabilities remained largely unchanged.

From public announcements we know that the Meru plants were closed for 3 days. At the time of the announcement, the company guided that the loss in annual production will be less than 1% (see here). However, it appears that subsequent quarantining of workers might have resulted in much lower than expected utilisation rate. The company mentioned in its report that during the quarter it has commissioned the remaining production lines in Block B of Plant #12, and it fully contributed an added capacity of 2.2 billion pieces for the quarter, or a little over 8% extra capacity.

If that is the case, and having in mind the aforementioned extracts from the quarterly report, the ASP should have actually increased slightly. In fact, if you read the report carefully, you will notice the following on page 8:

"Increase in average selling prices (ASPs) each month which started in March, 2020 for both its Manufacturing and Distribution divisions."

And on page 9:

"Continued rise in average selling prices (ASPs) and thus contributing higher earnings from Manufacturing and Distribution."

That is precisely why further guidance from the management is needed in order to be able to draw any specific conclusions. Nevertheless, as Supermax increased their selling prices the fastest and the most aggressively, it is expected that by the standard rules of an open market environment, their ASPs will fall faster. The real question is not if their ASPs will fall faster, but rather until what level they will fall as compared to the ASPs of other players.

Hartalega's Guidance (or Lack Thereof?)

In the article I mentioned in the beginning of this post, the author shares his opinion about the management of the different glove companies. I have likely not observed the industry for as long as other investors might have been observing it, so I will talk just about the very recent past. Elsewhere I have mentioned that while I have nothing against the company, if I were an investor, I wouldn't have liked a number of things in the recent quarterly report. I wouldn't have liked the fact the management had not provided any proper guidance neither on the materially significant fall in utilisation rate, nor any specifics on the reasons for that fall in utilisation rate, nor on the reasons for the seemingly decreased dividend payout. I would have certainly written an email with serious questions on these matters to the investor relations department. If the company has indeed provided such guidance and I have missed it, I apologize in advance.

First, according to Hartalega's website, the question on the company's dividend policy is answered in the following manner:

"Hartalega announced during its Annual General Meeting for financial year 2018 that Hartalega will commit to a dividend policy of minimum 60% pay-out of earnings as dividends." (Source)

However, the dividend payout for the financial year came at 39.4%, far below 60%. The closest it came to the mentioned 60% payout was in the last quarter - 54%. No guidance or explanation was provided that I could find, neither in advance, nor post factum on where this significant difference came from. I have recently discussed elsewhere that the lack of proper dividend policy for most Malaysian companies makes it all the more difficult for minority shareholders to analyze the companies and the corresponding risks. Such significant discrepancies don't make it any easier.

Second, the utilisation rate for the quarter was 64% - a massive drop from 95% in the previous quarter. That was explained with lack of container space, and with "production line closures as a preventive measure and safety precaution due to rising number of COVID-19 cases." However, I did not see any of these issues, which have evidently impacted the business of the company in a major and substantial way, mentioned anywhere during the quarter. The last, and only time I have seen the company give guidance on matters related to closures due to workers being quarantined was on December 14, 2020, when the company guided that the capacity loss for the company will be less than 0.5% of the annual output (see here). In my view, it is important that a company's management shares both positive and negative news as soon as such news occur.

Third, on specific reasons - as an existing/potential investor, even if the company has failed to immediately disclose such material disruptions in business operations, I would still like to know more details on the disruptions. For instance, I would have liked to know when and which factories or production lines have been closed, and what measures the company has taken in order to avoid that from reoccurring. I would have also liked to know what the plan is in regards with mitigating the risk of ongoing container shortage, as it is expected to persist worldwide in this quarter as well.

Overall, it is important to believe in the management of the company one has invested in. However, the relationship needs to be reciprocal and management should be transparent to minority shareholders, especially in regards with materially important issues. Minority shareholders should demand more in regards with disclosure from the management of companies, especially Malaysian companies, in my very humble view.

Important disclaimer: Any views expressed are for informational and discussion purposes only. None of this information is intended as, and must not be understood as, a source of advice. It is imperative that you always do your own research and that you make any decisions based on your personal situation and your own personal understanding.

Labels: SUPERMX, HARTA
  10 people like this.
 
arv18 "For once I didn't like the taste of that write-up, as I don't believe it's nice to kick someone when they are down, as is the case with Supermax (down 12% as of writing this post)."

A wee bit green, when it comes to Bursa it seems.

Also, consider a more apt name for your blog:

Trying to Make Sense (Of) GLOVE Stocks

Cheers.
06/05/2021 5:55 PM
arv18 As an invester, the price fluctutations shouldn't bother you. There wouldn't need to be navel gazing, constantly micro-analysing a "good investment" like someone with OCD.

An investor would dollar cost average over time, after a careful analysis was done.

Or did you sailang with margin?
06/05/2021 6:00 PM
observatory Ben, thanks for your analysis. Thank you for the effort in keeping everyone informed on the latest development.

I agree that Supermax statement on the ASP drop is not very clear. But since it’s part of the press statement I don’t expect detailed elaboration. However, analysts who attend the post result briefing should clarify and report accordingly.

Taking a step back, I see the market sell off as a sign where investors believe ASP has reached a turning point sooner than expected (though Harta may have 1 more quarter). Just a few months ago, the market consensus was ASP would remain elevated throughout the 2021, perhaps with only gradual decline in second half of 2021. A drop of 15% to 25% in the first quarter has badly dented analyst forecast for 2021. That’s why in today research reports on Supermax analysts slashed revenue, earning, cashflow and the resulting TP.

Supermax press release also mentions about large-scale increase in public listed Chinese rivals. Although it doesn’t name them, the high-profile ones are Intco Medical, Blue Sail Medical and Zhonghong. Actually Intco Medical also had a record revenue and profit in Q1 2021. Q1 revenue of CNY 6,735 million was 38% higher QoQ. Operating margin at 66% is on par with Malaysian glove producers.

Intco is still aggressive with its expansion plan. A subsidiary is building a Nitrile Butadiene Rubber facility with a capacity of 500,000 metric tons in Anhui province. The company announced that the first phase with 300,000 metric tons of NBR is already under installation. Intco also projects another 120 billion pieces of glove capacity come online by Q2 of 2022.

However, like Malaysian glove producers, Intco share price has weakened since the last few months (from the height of 280 to 160). Currently Intco is only valued at a TTM PE of about 5 times. So both the largest (TG) and second largest (Intco) glove makers in the world are now selling at 5 times!

In a sense that may be good news for Malaysian producers. It means Intco will face challenge in raising large amount of capital in Hong Kong. Actually, I suspect TG also faces the same challenge. TG recent announcement to halve the size of its HK listing is not so much due to consideration of not diluting Malaysian investors (if so why go ahead in the first place), but probably because TG bankers have difficulty securing enough interests from new investors.

If my guess is right, that will actually be favorable for leading Malaysian players for they can continue to expand and defend their market share using internally generated funds. That is the plan of Hartalega and Supermax as they only give out meagre dividends, preferring to plough their profits for expansion and defense against the Chinese.
06/05/2021 6:53 PM
DickyMe One should take a truck load of salt when analysing local companies QR reports.
06/05/2021 6:55 PM
Ben Tan arv18, thank you for your comments. I am sure you mean well even though it doesn't come across this way.

You are making a lot of assumptions, so to make it easier below are some clarifications:

- I have mentioned elsewhere that I've started observing Bursa not long ago, and before that it wasn't a market I was interested in. Thus, yes, you can say I am "green" when it comes to Bursa. I am interested to learn nevertheless.

- My articles have so far focused on macroeconomic issues and on gloves, because the forum is focused on Malaysian investments, and my opinion based on macroeconomic assessment leads me to be interested at this time specifically in glove stocks in Malaysia. That doesn't mean this would be the case moving forward. In fact, I hope it wouldn't be so.

- I avoid sharing publicly buy/sell transactions as this may trigger others to follow me, when they might not need to, or worse - when it's not good for them. All I am sharing is information and analysis. I do that because I hope it would lead to constructive discussions, and that has indeed happened a few times so far. Additionally I believe in giving in order to receive, so my hope is that more people will share their analyses or information they might have come across - as happens occasionally here in the forum. In a nutshell, my posts are not meant to be buy/sell calls or at all associated with trade recommendations. That is why I don't share publicly my investment decisions or strategies as I execute them. I would be happy to meet up for a coffee once the pandemic eases up and to exchange ideas in person though.

- I know that a certain number of people are reading my posts. Most of the time my posts are in response to someone asking me a question or me seeing a question asked by many different people. So please don't accept my posts as the work of obsessive hyperactivity, they are just a response to questions being asked and me trying to figure out the answers (which may sometimes be wrong, of course). My stances on the companies I write about have not changed since I started writing this blog about 6 months ago as nothing has fundamentally changed. That doesn't mean that I am not interested in observing how their stories develop.

- I have mentioned previously when you have made similar assumptions that I have never bought stock on margin, I likely never will, and I don't recommend the use of leverage for investment to anyone.
06/05/2021 6:56 PM
Ben Tan observatory, as always thank you for your detailed comment.

On Supermax, I would still like to receive more precise guidance by the management before commenting on ASP. By the look of the financial statement, the "15-25% decrease" statement might have been related to spot orders as it is practically impossible their blended ASP could have fallen by that much (based on the financials). They have been keeping approximately 10% of their production for spot orders, so the dent is 1.5% to 2.5% of revenue, potentially. But again - these are just assumptions.

On the Chinese companies, Top Glove, and listings on Hong Kong, my thoughts are very similar. I believe one of the reasons Top Glove reduced the amount of shares to be issued for HKEX because the interest was not as robust as initially expected. As you mention, contrary to what most people might think, this is likely good news, because it means Intco won't be able to raise the funds they so much need urgently at elevated price.

In any case, the Chinese players operate in a more suitable environment currently than the Malaysian players - that is evident. China has managed to control the pandemic, while Malaysian players have had significant disruptions to their operations due to outbreaks in their factories. There is no talk of windfall taxes in China (at least none that I have heard of), while one of the most prominent economists in Malaysia apparently continues to support the idea vis-a-vis Malaysian manufacturers. From what I gather, Sri Trang enjoys significant tax breaks to its operations in Thailand, too.
06/05/2021 7:06 PM
Up_down Ben Tan, Nice follow up with the glove sector. Harta dividend policy is quite consistent with the payout 60%. The latest dividend declared 17.7 cents was derived from 3rd Qtr 2021 EPS 29.3 cents x 60%. Next round of dividend expected is 19.7 cents ( 4Qtr EPS 32.75 cents x 60%)

"
However, the dividend payout for the financial year came at 39.4%, far below 60%. The closest it came to the mentioned 60% payout was in the last quarter - 54%. No guidance or explanation was provided that I could find, neither in advance, nor post factum on where this significant difference came from. I have recently discussed elsewhere that the lack of proper dividend policy for most Malaysian companies makes it all the more difficult for minority shareholders to analyze the companies and the corresponding risks. Such significant discrepancies don't make it any easier."
06/05/2021 8:19 PM
Ben Tan Up_down, thank you for your comment. This is very interesting. So what you are saying is that their dividend payout comes 1 quarter later every time?
06/05/2021 9:37 PM
Up_down Exactly.
Posted by Ben Tan > May 6, 2021 9:37 PM | Report Abuse

Up_down, thank you for your comment. This is very interesting. So what you are saying is that their dividend payout comes 1 quarter later every time?
06/05/2021 10:02 PM
observatory Let’s digress a bit. Yes, I also read about Prof Jomo’s remark to impose windfall tax on industries that greatly benefit from the Covid-19 crisis. No doubt it will impact glove stock share price if the government were to take his advice. May be there will be some sort of compromise later, like another round of contribution by the large glove makers to relieve the pressure.

Windfall tax will not doubt hurt Malaysia’s image. The country has been lagging behind regional peers in wooing foreign investors. It will also deter local investment. However, to put things in perspective, Malaysia will not the first countries to impose such a tax. In fact within Malaysia the glove industry will also not be the first to “suffer”. Utilities and palm oil producers have paid/ been paying windfall tax.

In fact, I consider it’s even more unfair for palm oil producers, many of them are struggling, to have to share their “windfall” whenever CPO price merely exceeds RM2,500 per MT (RM3,000 in East Malaysia). This so-called windfall levy on palm oil companies is based on selling price rather than profit. As a result, even loss-making palm oil companies have to share their “windfall”. If the tax has to be imposed, it should be on a real “windfall” situation, i.e. that is currently enjoyed by glove companies.

There are two common arguments against imposing windfall tax on glove companies. First argument is glove is not commodity like palm oil. There are many different types of gloves like surgical, cleanroom and so on. There are also branded and OEM. However, on the other hand, unlike say electronic products, there are only so many types of gloves. So, I believe this is mere technical issue that could be resolved, even if not very satisfactorily.

A better argument is a windfall tax will defer glove producers from further investment, and may even drive them to invest abroad. That’s why I think the windfall tax will have to be designed in a clever way to encourage continuous domestic investment. For example, part of the tax should be exempted if investment in Malaysia is above certain threshold. This will encourage glove companies to invest their profits but discourage it from splashing on dividends or stock buybacks.

The next question is that, if government discourage dividend when glove companies have record profits, who will want to invest in glove company stocks? The share price will sink. But actually this doesn’t really matter from the economy stand point. The glove shares are currently traded in the secondary market (Bursa). No matter how high or low the share prices are, it is not going to increase or decrease company capital which is needed for investment.

It only matters when companies want to raise new fund through IPO or placement or right issues. But with record profits it is very unlikely that leading Malaysian glove companies need to raise fresh capital in the next few years. At least not in Malaysia. The secondary listing by Supermax and TG are to take place outside Malaysia anyway.

I suppose many glove investors won’t like my view. In a nutshell what I want to say is I agree that windfall tax should never be imposed in an ideal world. However, Malaysia is far from ideal, and windfall tax already exists today and get imposed on the wrong targets. So I think a carefully calibrated windfall tax on glove companies is not necessarily a bad idea, especially if it can relieve the pressure on public finance and offer respite to palm oil companies.
06/05/2021 10:53 PM
arv18 Fair enough Ben, we all need to start somewhere. I understand, most savvy folks tend to avoid Malaysia and head straight for NYSE or NASDAQ.

I'd like to add something, not highlighted, from the press release:

The vulnerability of disruption of PPE supply chains and over dependence on imports is the primary concern of governments around the world. To address this major concern in countries where Supermax operates, we are reinvesting the earnings derived from our distribution centres into the respective countries where Supermax operates. The capital expenditure earmarked for the US is US$300 million for phase #1 and US$250 million for phase #2 making total of US$550 million. Currently, the company is working with various government agencies in the US..."

Basically, Supermax has caved into American blackmail (via US Customs and Border Protection), something Top Glove has refused to do.

As a shareholder, this mean all profits will be reinvested for the benefit of US politicians and interests. There will be little to no spare cash for buybacks or dividends. The American venture will not yeild as healthy margins, and could be loss-making, if the market saturates in the future.

Meanwhile enjoy the volitality and make some money.
07/05/2021 7:33 AM
pjseow Ben Tan, thanks again for following up with supermx and Harta QR . I too has the same questions on supermx remarks on the 15 % to 25 % drop of ASPs. I think Harta briefing slides are more transparent and provided better guidance .

Harta Q4 revenues and PAT fit well with its 50 % increase in ASP and drop in utiliation .

Q3 ASP = US 55 , shipment = 9.5 billions exchange rate = 4.08

Revenue = 55 x 9.5 x 4.08 = 2.13 billions
Profit = 2.13 x 0.47 = 1.002 billions

Q4 ASP = US 55 x 1.5 = 82.5 ,shipment = 6.7 billions , exchange rate = 4.15

Revenue = 82.5 x 6.7 x 4.15 = 2.3 billions
Profit = 2.3 x 0.485 = 1.112 billions

I agreed with you that supermx statement of ASP drop led to many confusion and misunderstandings . It led many to believe that the ASP of last qtr ( Q3 ) drop which resulted in drop in revenue and profit when actually is not . It is impossible for supermx to deliver a PAT of 1.080 ( exclude the 75 million donation if its Q3 ASP drop 15 to 25 % with Meru shutdown which has leads to lower utiliation . Based on my assumptions of two scenarios , the first is ASP increase 30 % ( assuming Nitrile ASP of 82.5 ), its utiliation is 70 % and another scenario is ASP increase by 40 % , its utilization is 64 % . Both scenarios had ASP increase . It is unfortunate that many IB s assume that supermxx Q3 's ASP drops 15 to 25 % which is IMPOSSIBLE mathematically . Supermx could have meant the drops was for spot prices which used to be 2 to 3 x of normal prices but this is only a small fraction of total sales .Supermx should be more transparent on this so that there is no confusion .


Comfort is more detailed on the shortage of container issues . In the prospectus of its last QR , it clearly stated that high inventory was due the shortage which has affected 25 % of its shipment and this will be shipped in subsequent qtr . I expect Comfort to deliver another super qtr with this additional shipment .

Harta maintained that the ASP for next qtr will be the same or better than Q4 .If we assume same ASP of US 82.5 plus the additional inventory rolled over , its next QR will be superb if there is no plant disruption .
Supermx had similar inventory increase but it did not mention container shortage problem . I would prefer to presume that the first scenario where its ASP increase only 30 % rather than 50 % like what Kossan and Harta experienced . Its utilization of 70 % is not as bad as Harta . Either was , we still expect Supermx to deliver a fairly good result next qtr even its ASP drop to Q2 level which is unlikely supermx will sell lower price than Harta .
Hope my comments help .
07/05/2021 10:19 AM
Ben Tan Up_down, observatory, arv18, pjseow, thank you for your comments.

observatory, this goes a little bit off-topic, and it might be a matter to be considered in an entirely separate article, but in a nutshell an unwarranted windfall tax is long-term economically a very negative thing. And I am not saying this because I have holdings in some of the glove companies, for instance. I would have said this for tech manufacturing, food processing, or a myriad of other industries that might experience temporary excess profits due to unforeseen events. Such type of taxes stifle and discourage investment as a whole. For a country like Malaysia, which doesn't have plenty of world-leading industries to begin with, such a blow may prove devastating, especially in the face of international competition.

Manufacturing involves a capital intensive, complicated process, in order to add value to produce. Thus, a windfall tax on a manufacturer is not the same as a windfall tax on a commodity. It is even hard to make the case for a utility, although it is a close thing to commodity in its basic form. The reason the UK, for instance, previously imposed a windfall tax on utilities was because of perceived problems during the privatization process (utilities privatized at below market rates), not because of "windfall" profits per se.

arv18, yes, the US venture of Supermax is something that deserves to be discussed in more details. From a purely economic point of view, it certainly doesn't make sense - as doesn't make sense any other manufacturing capacity of nitrile gloves set up in the US by American companies. Without the direct aid of the US government, these businesses cannot remain competitive. The big unknown there is the deal Supermax would be able to cut with the local state governments in terms of incentives, and with the federal government in terms of ongoing commitments. Unfortunately the visibility on both of these topics is so far scarce.

pjseow, yes, these are precisely my thoughts. I am still trying to find the analyst briefing slides. I believe they could shed some light on the matter. So far the short notes I have seen in the updated reports of MIDF and CIMB don't provide a lot of extra details. In any case, I truly doubt that the blended ASP of Supermax will go below the ASP of Harta. It wouldn't make sense if it did.
08/05/2021 2:17 PM
pjseow BEN Tan , thanks for your reply . TOday I came across an article from Sin Chew which quoted analysis from TA . It stated that the coming qtr ( Q4 April to June ) and subsequent qtr ( Q1 July to Sept) earnings will be better than Q3 . Reasons being ASPs had been "locked in " in earlier contractual agreements . They believed the contractual prices in Q4 will be between US 80 to 110 per 1000 while Q1 prices will be aroung US 80 .While the US 70 -80 ASPs after 15 to 25 % drop from the peak will not be the ASPs of the 2 comming 2 qtrs . It also states that Supermx did not receive any cancellation of orders as they deal direct with the buyers instead of agents . Besides , Supermx also received a lot of repeat orders from the governments . THese orders had 15 to 25 % lower ASPs.
Since Supermx are selling both Nitrile and Latexx gloves , I supposed TA meant the weighted ASPs . In this case , the Nitrile ASP from Supermx is still higher than Harta Nitrile ASP of next two qtrs .
08/05/2021 5:48 PM
Ben Tan pjseow, thank you for your comment.

I found an update note from Nomura, which was very detailed. It features similar information to what you are mentioning from TA's report. You can download it from here: http://www.supermax.com.my/html/filedownload.aspx?file=(1)%20NOMURA%20RPT%20DD%206.5.2021%20BUY%20TP%20RM8.39.PDF

Could you share a link to that Sin Chew article?
08/05/2021 9:15 PM
Stockisnotfun Oh so this is KYY i3 forum sub account. No wonder where is his hard promoting glove article goes so the article was published using this account.
08/05/2021 9:49 PM
pjseow Ben Tan, the Sin Chew article is still in klse screener but it is in Chinese under the title 手套需求料续红火 速柏玛两季盈利赹升。
09/05/2021 9:13 AM
Ben Tan pjseow, thank you for the info. I will try to find it.
09/05/2021 10:08 PM
Bizfuneng https://www.klsescreener.com/v2/news/view/826107?fbclid=IwAR2H1fNzaQHXBgl9HlTAemHYO9tnRUVbOla8B-vlNCgaAWu1MBxCspV-SME
09/05/2021 10:40 PM
newbie8080 Useful information from Nomura. Thumbs up.
10/05/2021 12:12 PM


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