Posted by soojinhou > 2021-01-25 17:22 | Report Abuse

First of all, understand the markets. 90% of China's stock exchanges are driven by retailers, compared to about a third in Malaysia. On the contrary, institutional participation is much higher in Bursa than in China. So, it is better not to benchmark Malaysian glove stocks against Intco, but benchmark Intco against Malaysian glove stocks.

Posted by super_newbie > 2021-01-25 17:22 | Report Abuse

Intco Medical up to date annual capacity are 24 billion vinyl gloves and 12 billion nitrile gloves.

Posted by Targeted > 2021-01-25 17:25 | Report Abuse

Nice one.....

Posted by Goldberg > 2021-01-25 17:33 | Report Abuse

Thanks Ben for the short and sweet article.

Supermax has a lot of upside from the looks of it.

If we factor in the impending Long term contract deal with the Biden Administration, the sky's the limit for Supermax.

Posted by wkc5657 > 2021-01-25 17:33 | Report Abuse

the glove frenzy some months ago in bursa....just x10 in china....and the best thing is the retail participation is increasing....the valuation there is just pure crazy for intco....

Posted by Primeinvestor > 2021-01-25 17:35 | Report Abuse

Supermax capacity is 30b, intco is almost 26b

Posted by gohkimhock > 2021-01-25 17:37 | Report Abuse

there are only 7.8 bil human beings in this world. When was the last time you ever wear a glove?

Posted by al8800 > 2021-01-25 17:42 | Report Abuse

In that case, Supermax should list in HK , big funding !!!!!

Posted by Ben Tan > 2021-01-25 17:50 | Report Abuse

soojinhou, thank you for your comment. Neither the markets' participant composition, nor their size, nor their depth and breadth are the same. This has little to do with companies and their earnings versus corresponding market price though.

super_newbie, could you let me know where you got the information from? As of September last year their total capacity was 19 billion pieces.

Targeted and Goldberg, thank you for your comments.

wkc5657, the frenzy from June-October last year on Bursa was nowhere near to the level it is on Intco right now. Additionally, the drivers were different. The Bursa frenzy was predominantly short-term profit taking driven as became evident after profits were quickly taken post-vaccine news. China's buying momentum is a lot more related to fundamentals.

Primeinvestor, could you let me know where you got the information from on Intco? I stand corrected on Supermax's capacity. As of 31 December 2020, their capacity is 26.175 million pieces (see: https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3099760)

gohkimhock, thank you for your comment. The earnings potential of the glove manufacturers at present has relatively little to do with the total world population, and most certainly it has nothing to do with yours or my personal yearly glove consumption.

Posted by CCCL > 2021-01-25 18:57 | Report Abuse

More than100 million Chinese have trading accounts. How many trading accounts do we have?

Posted by Andre Kua > 2021-01-25 19:00 | Report Abuse

I wonder if you look into Intco business before writing this article. Intco makes more than just gloves.

Posted by Ben Tan > 2021-01-25 19:07 | Report Abuse

CCCL, thank you for your comment. Unfortunately the Malaysian stock market is indeed of insignificantly smaller size. However, foreign funds can still access it. Hopefully things will improve, especially after the listing of Top Glove on HKEX.

Andre Kua, thank you for your comment. I did my absolute best to find as much information as possible on Intco Medical over the last few weeks. Unfortunately, apparently in their financial reports they don't provide revenue/profits by segment of their business. In any case, I have seen a number of places give gloves as their main business. Please note that no company operates in only one sector, or sub-sector. For instance, Supermax produces contact lenses and face masks, besides gloves.

Posted by witan > 2021-01-25 20:52 | Report Abuse

Just ask yourself this question, whenever there is a seller there is always a buyer. Someone has been collecting TG by lots when retailers panic sell

Posted by Icon8888 > 2021-01-25 22:00 | Report Abuse

Don't so desperate on glove, no MCO tmr uturn for sure, today all panic sell other swift to glvoe, tmr all sell glove swift back to tech.

Posted by Anthem2 > 2021-01-25 22:36 | Report Abuse

Tks Ben, something to ponder on although I can't say the same for the standard of some of the rebuttals pointed your way. Nevertheless....keep it going!

Posted by Ben Tan > 2021-01-25 22:41 | Report Abuse

witan, Icon8888, Anthem2, thank you for your comments.

witan, it does seem like the biggest collectors of sold shares have been retailers, based on daily stats.

Icon8888, the earnings prospects of the Malaysian glove manufacturers depend to practically a negligible extent on if there would a full lockdown in the country or not.

Anthem2, I always welcome opposing opinions. Unfortunately, not many have been particularly constructive.

Posted by Goldberg > 2021-01-26 10:41 | Report Abuse

Well said Ben.

Icon8888, the earnings prospects of the Malaysian glove manufacturers depend to practically a negligible extent on if there would a full lockdown in the country or not.

Here's a quote- by Hartalega Chairman- Mr Kuan - Gloves demand.

"In addition, the sector is expected to undergo a structural step-up in demand on the back of increased glove usage from emerging markets with low gloves consumption per capita and heightened hygiene awareness. The overall projected growth in demand is expected to outstrip supply for the next few years.

Posted by tylee81 > 2021-01-26 10:48 | Report Abuse

@ben tan,I'm not excited all the gloves counters released a tremendous good QR,coz it is expected,they surely can make it,it's not surprising.but the point is round after round when QR released,there must be a selloff,and it might continuous few days o weeks,this is sick man,share price totally works opposite frm results,may I knw what is your view?

Posted by Jim Tan > 2021-01-26 10:54 | Report Abuse

Gohkimhock
l lol at your comments~ that's the funniest I read today.
thank you

Posted by Ben Tan > 2021-01-26 12:01 | Report Abuse

Goldberg, tylee81, Jim Tan, thank you for your comments.

tylee81, I keep hearing that the quarterly results have been expected by retailers (bless their incredible foresight), and then I keep seeing analysts coming out and saying things like "results beat expectations by 20-30%", so I am not exactly sure what to say. Yes, great results were expected, but the results have consistently been beating even the consensus expectations by a significant margin.

Posted by birkincollector > 2021-01-26 13:55 | Report Abuse

china huge size of retail players make it much harder for operators to control the price

Posted by newbie8080 > 2021-01-26 16:34 | Report Abuse

@Ben Tan

I believe the world largest glove manufacturer refers to the number of glove production capacity instead of market capitalization.

Topglove is the largest and is currently meeting 25% of world demand.

Posted by Ben Tan > 2021-01-26 17:47 | Report Abuse

birkincollector and newbie8080, thank you for your comments.

birkincollector, the market size is usually directly proportional to the amount of capital that market attracts. Unfortunately, it does seem like the big glove manufacturers have outsized the Malaysian stock market as the amount of capital they attract (either in a positive or in a negative manner) is beyond the scope of Bursa.

newbie8080, yes, that is what I said in my post. However, please note the irony of the biggest glove manufacturer producing almost 5 times more gloves (at higher profit margin segments) than the biggest glove manufacturer by market capitalization. Note that Intco is actually not even listed on the main Shenzhen stock exchange (they are listed on ChiNext).

Posted by observatory > 2021-01-26 17:59 | Report Abuse

Ben，
The latest production capacity of Intco Medical mentioned by super_newbie is mentioned in a Chinese brokerage report. Capacity increased 89.5% annually from 19 billion in 2019 to 36 billion in 2020.
"同时2020 年公司产能大幅提升，从2019 年底190 亿只增加到2020 年底360 亿只，同比增速89.5%"

The Chinese analyst is equally bullish about future demand.

Interestingly, the Chinese analyst also expects Intco Medical to rapidly expand capacity and capture 30% world market share in 2-3 years.
"..未来2-3 年公司产能持续快速扩张，保守预计占到全球30%市场份额。"

Source:
https://xueqiu.com/S/SZ300677/169960193

Posted by Ben Tan > 2021-01-26 19:41 | Report Abuse

observatory, as always - thank you very much for the information. Unfortunately I don't read Chinese, so my research capabilities on the Chinese players are admittedly limited. The numbers seem to be substantially different at different sources. Do you happen to know where the original source of this data is?

30% of the total market in 3 years (by end of 2023?) would likely mean they would have to produce 130-140 billion gloves per annum, which I think is pretty much impossible. For comparison, with a very aggressive expansion campaign Top Glove will be able to produce 134 billion gloves per annum by the end of 2022, and they target total capacity of 190 billion gloves per annum by 2025.

Posted by bsstradeer > 2021-01-26 20:48 | Report Abuse

Ben Tan, no need explain so much to ppl. No one will appreciate what you say, even though is true. All you get is left right bang only. Everyone just want quick money. i believe if u write JCY is undervalue now and can fly to RM100, everyone also believe. Because now is technology trend, and ppl just like to hear what they like to hear..Thanks for the sharing.

Posted by observatory > 2021-01-26 22:11 | Report Abuse

Hi Ben, you’re welcome. It’s also my interest to understand the foreign situation.

I did some search. Another brokerage report also mentions the capacity of 36 billion by end of 2020. But the keyword here is “expect”. So I suppose the company has not made any official announcement yet.
我们预计2020年底公司总产能已达到360亿只（PVC手套产能240亿只，丁腈手套产能120亿只）

Source: https://xueqiu.com/S/SZ300677/169849357

I found another article that provides more details on the capacity expansion plan. The earlier expansion plan at Anhui and Jiangxi provinces targets 49+40+27 = 116 billion pieces capacity. It recently announced further capacity at Shandong totals 50+3+50+50 = 153 billion pieces.
Source: https://www.sohu.com/a/446766060_120047081

I’ve cross-checked some of the recent official announcements by Intco Medical. The numbers match (you may google translate for details):
http://file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESZ_STOCK/2020/2020-12/2020-12-01/6756908.PDF
http://file.finance.sina.com.cn/211.154.219.97:9494/MRGG/CNSESZ_STOCK/2020/2020-12/2020-12-01/6756907.PDF

Of course, there is still the question of whether the company could successfully execute such an aggressive expansion plan in the next few years. Are these just empty talks not unlike some Malaysian “vaccine players”?

Nonetheless, this company did have a track record of growing its capacity. It grew from 7-8 billion pieces in 2017 to a few times more by 2020. Funding should not be an issue as favored Chinese exporters typically enjoy cheap or even free land and easy access to credit by local governments. This company also plans for HK listing.

I would keep an eye on the Chinese players. There have been many examples of how their aggressive expansion spoilt the market, for example in steel and solar panels.

The other Chinese players beside Intco Medical are Bluesail Medical (蓝帆医疗), Hongray (石家庄鸿锐), Zhonghong Medical (中红医疗).

Posted by Ron90 > 2021-01-26 23:18 | Report Abuse

Bursa market very small la, easilly manipulated even by smal-smal sharks. when you expect good company stock up, they push it down.. when you least expect con-man stock or always in red results, pricing better.

if u want based on fundamental, buy maybank, pbb la.. dead wood stock .huhu

Posted by lching > 2021-01-27 00:32 | Report Abuse

yes, never underestimate the industrial capability of China competitor.

Posted by Ben Tan > 2021-01-27 09:41 | Report Abuse

observatory, thank you very much once again. I will review them carefully. I have also done some extra digging and I will share my findings a little later (probably next week).

Ron90, thank you for your comment. Banks, and a few other companies in other industries, are certainly fundamentally sound.

lching, thank you for your comment. Yes, China is always a force to be considered.

Posted by calvin69 > 2021-01-27 14:20 | Report Abuse

Buy TOPG/Super, sell Intco

Posted by speakup > 2021-01-27 16:48 | Report Abuse

yalor sell Intco swap buy Topglove/Supermax/Harta/Kossan

Posted by speakup > 2021-01-27 16:49 | Report Abuse

ironic isnt it. Foreign funds willing to buy Intco at super high price but not willing to buy Topglove/Supermax/Harta/Kossan at cheap prices now.
what is wrong with Malaysia? Is it backdoor govt?

Posted by Ben Tan > 2021-01-27 19:41 | Report Abuse

calvin69 and speakup, thank you for your comments.

Note that I am not necessarily saying that anyone needs to sell their Intco shares. Intco might as well be fairly priced. The only thing we know is that there is a huge discrepancy between their valuation and the valuations of the Malaysian glove manufacturers.

Posted by observatory > 2021-01-28 03:00 | Report Abuse

With due respect, I disagree with some of the comments here.

The question is how could a Chinese glove company enjoy a seemingly much higher valuation than the Malaysian big four, which together control 60% or more of the world market.

First, one needs to understand the peculiar nature of the mainland China stock market. Not only that a comparable company in mainland China may enjoy a higher valuation than its foreign peers, but even the share of the same mainland company could trade at a significant premium inside mainland China compared to say in Hong Kong.

Click on the link below you will find the full list of more than 100 Chinese companies that have a dual listing in the mainland (A share) and Hong Kong (H share). Every single one of these mainland company A share is sold at a premium to its H share which carries the same right and entitlement. In other words, its H share is sold at a discount outside of the mainland.

The discount could be as high as 70 to 80 percent. In other words, the mainland A share for the same company could be 3 times dearer than its Hong Kong H share! And many of them are large-cap stocks. The list includes the top insurance company China Life (62% discount), SMIC the chip maker targeted by US sanction (58% discount), and oil & gas behemoth PetroChina (51% discount).

http://www.aastocks.com/en/stocks/market/ah.aspx?sort=5&order=1&am...=3

Therefore any idea of exploiting the valuation difference by selling Intco Medical and buying Malaysian glove stocks will never fly, at least before those 100+ Chinese companies can close their own valuation gap which has persisted for years!

The next reason might be specific to Intco Medical itself. The company enjoys higher valuation partly to do the current market perception of its tremendous growth prospect. As reported in the links I share earlier, Intco has a capacity expansion plan of over 300 billion pieces. Chinese analysts claim that it could capture 30% world market 2-3 years from now. Rightly or wrongly, its higher valuation reflects the market expectation.

This can also be seen from the valuation disparity between Intco Medical versus the other Chinese glove maker Bluesail Medical. Both actually have comparable capacity right now. However, while the more aggressive Intco is sold at 13.9 times forward PE, the relatively conservative Bluesail is only sold at 7.8 times forward PE (refer data by Reuters in links below).

https://www.reuters.com/companies/300677.SZ
https://www.reuters.com/companies/002382.SZ

Therefore, even within China, comparable glove companies have different valuations. So this is not simply a matter of China has a higher (or Malaysia has a lower) valuation.

The stock market is forward-looking. The valuation reflects the market belief in future earnings growth prospects. As Intco is pursuing a very aggressive capacity expansion plan, right now the market grants a higher valuation. Of course, if it fails to achieve the growth assumed, its valuation will crash in the future.

Posted by observatory > 2021-01-28 03:02 | Report Abuse

By the way, Reuters also shows that the forward PE of Top Gloves is at 5.3 times versus Hartalega at 16.8 times.
https://www.reuters.com/companies/TPGC.KL
https://www.reuters.com/companies/HTHB.KL

In short, the valuation ranking is in fact Hartalega (16.8X) > Intco Medical (13.9X) > Bluesail Medical (7.8X) > Top Gloves (5.3X).

Malaysia glove companies can be dearer and cheaper than their Chinese peers at the same time. So probably the question isn’t about why Malaysian glove makers have lower valuation than Chinese. Rather the question may be why among Malaysian glove makers, Top Glove has a much lower valuation than Hartalega!

Posted by Ben Tan > 2021-01-28 10:26 | Report Abuse

observatory, thank you very much for your detailed comment. I am very happy that this is turning into a discussion, because this was the main purpose of this post (as you can see from its brevity).

As we have discussed before and elsewhere, the expansion plans of Intco at present appear highly inflated. However, even if those plans materialize over the next 2-3 years, they will still be behind Top Glove both in total production capacity, and more importantly - in production capacity in high profit margin segments. Thus, it is pretty much certain that the valuations of Intco on the Shenzhen stock exchange are elevated.

I also agree with you that Hartalega's valuation traditionally has been on an inflated side, in my humble opinion of course. That is why I didn't mention them in the post above.

Posted by observatory > 2021-01-28 12:54 | Report Abuse

Hi Ben, thanks for your reply. Yes, I too enjoy our discussion which stimulates thoughts and further inquiries. As an investor, I always believe in the importance of adequately covering multiple points of view so that I won’t be caught by surprises later.

Just an update on Intco Medical glove production capacity. Recall earlier it’s unclear whether Intco has indeed expanded its capacity by 89.5% from 19 billion in 2019 to 36 billion in 2020. Today I’ve found the company confirmation made by the company Board Secretary or 董秘 in the social media (Note: this is also a unique Chinese feature where the Board Secretary usually functions as Investor Relations. And they interact with investors on social media)

On 14 Jan 2021 the Board Secretary replied to an investor query that by the end of 2020, the company capacity has reached 36 billion pieces, consisting of 24 billion PVC gloves and 12 billion nitrile gloves.

Source:
https://finance.sina.cn/other/relnews/dongmiqa_list.d.html?market=sz&code=300677#/home/sz300677

I've also noted on Jan 27 the Board Secretary has made another reply confirming a certain new production line being operational, adding 4.5 billion pieces of nitrile glove capacity. However, it's unclear whether the 4.5 billion is part of or on top of the 36 billion capacity.

There is an article by 21st Century Business Herald (which is like The Edge of China) reporting on the company situation.

https://m.21jingji.com/article/20210127/ac32eb5d27b1fa81537426232d9a8331.html

The article reports on Intco’s ambition to overtake Malaysian glove makers, especially in the nitrile segment. The journalist has counted the company announcements of an additional 172 billion piece capacity from Mar to Dec last year, which are mostly for medical use. It also says that Chinese analyst has estimated the capacity to reach 74.4 billion by end of 2021, and 110.4 billion by end of 2022. By then Intco could become the world's largest nitrile glove producer.

You might be right that Intco stock price might be elevated. As mentioned in the report, there is currently an intense debate on whether its aggressive capacity expansion will result in a global supply glut.

I’m not sure whether Intco could realize its ambition. But I’m pretty sure its stock price will be on a roller coaster ride from this point onwards.

Posted by Ben Tan > 2021-01-28 14:38 | Report Abuse

observatory, thank you once again for your detailed explanation.

I found the forum/message board a few days ago and I also spotted the message regarding additional 4.5 billion nitrile glove capacity. It was unclear to me if that capacity is part of the earlier quoted 12 billion total capacity, or if that is additional capacity not included in the 12 billion, or if it's capacity they expect to come online very soon. That might be because I was using Google Translate though.

Top Glove have actually provided the most detailed breakdown of their incoming capacity, followed by the breakdown of Supermax. According to Top Glove's estimate their total capacity by the end of 2021 will be 110 billion gloves, of which 56 billion will be for nitrile gloves (up from 91 billion and 41 billion respectively currently). By the end of 2022, their estimated total capacity will be 134 billion gloves, of which 77.5 billion will be for nitrile gloves. Additionally, Top Glove's production lines for latex and nitrile gloves can be interchanged.

From what I understand, Intco's break-down of extra capacity in terms of types of gloves is "confidential". However, I can imagine a big part of it would go to PVC gloves.