Comparative analysis of Glove companies (9.5.2010)
http://spreadsheets.google.com/pub?key=thG2gqUrXjSrcpL3LAlPbRg&output=html

The whole sector has been re-priced since last year. The average PE for the sector is around 15.

Topglove trades at a slight premium. It is debt free and has net cash. It should continue to generate a lot of free cash flows in years to come.

Hartalega has done extremely well. It enjoys the biggest profit margin amongst the glove companies. This is due to its use of technology to increase productivity. It has overtaken the other more established companies and ranks 3rd in the earnings table.

Latexx has made a remarkable turnaround. It has good earnings and should continue to grow. Due to its smaller size, its growth is anticipated to be the fastest amongst all the glove companies.

Supermax is the most indebted of all the glove companies. Given the better glove business environment, perhaps, its management may surprise the investors in the next year or two. Meantime, its not as attractive as the above three companies in term of fundamentals.

Kossan has been disappointing. Kossan continues to carry a lot of debt despite having been a long player in the market when many other players have benefited from the strong revenue and margin growths to pare down their borrowings. Its profit margin is below the average of the industry.

Adventa gets good press. However, when comparing its fundamentals with its peers, it is not such an attractive stock. Its dividend payout is the highest in the industry compared to the industry average of nearer 20%. Moreover, its PE is the highest among the glove companies, but this does not appear to reflect its growth potential.

Rubberex is a disappointment and stood up quite apart from the fast moving players in this industry.

There are also significant risks in this industry, best summarised here:


Solid earnings growth as supplanted by

• capacity expansion, and
• positive newsflow

should lead to further expansion in PE multiples.

Key risks include

• a sudden surge in latex price,
• energy input costs or
• an unfavourable ringgit/US$ foregin exchange rate movement.