Sunday, 12 July 2020


The premise was a very simple one. In hindsight, it may seem obvious, but there were a lot of doubts and skepticism at the time. Everyone was calling a bubble in March, April, May.... and so on.

On 8 June 2020, we published a blog post - you can read it in its entirety, but our analysis essentially boiled down to several key insights:

1) If you really like glove stocks, buy the Big 4 - KOSSAN, HARTA, TOPGLOV, or SUPERMX. They offer the greatest profit potential, because they have all sorts of inherent fundamentals advantages.

2) Avoid hype - this means the penny stock companies that are just getting into the gloves game - and stick to the obvious plays. The Big 4 will actually make lots of money from selling gloves, because demand is set to exceed supply for quite a while until this imbalance is addressed. It sounds stupid simple, because it is....

3) The Big 4 will do better than the second tier glove players, many of whom have already enjoyed spectacular price gains. The Big 4's upside potential from both stock price and earnings perspectives are... to put it simply, greater.

So as of 10 July 2020, let's see whether we had just been talking cock, or if our insights made sense.

Chart 1 : Price Performance of the Big 4 counters since our blog post.

Chart 2 : Performance of the 'second-tier' glove counters since our blog post. For this comparison we'll use COMFORT, RUBEREX, and CAREPLS.

So it wasn't even a fair contest...

Chart 3 : For added measure, let's see how the other healthcare plays have fared. These are your hospital bedmakers, face mask manufacturers, glove mould companies, PPE providers etc. Note that our selection isn't comprehensive, but they are there to illustrate how the 'non-Big 4, non-second tier gloves' segment has performed.

These include companies that have just announced plans to enter the healthcare business, as well as those who do not currently count on healthcare as a major earnings contributor.

There are some important caveats for this huge outperformance though, and they are not very positive:

Global COVID-19 infections are still on the rise, with no peak in sight for countries like the USA and Brazil.

There are already second wave possibilities and sporadic community outbreaks, like in China in Hong Kong. In fact, the Hang Seng fell 2% after the news of new infections came out.

A persisting outbreak is not good for the long term health of the global economy. Neither is it good for stock markets, obviously.

At the same time, it's very possible that low interest rates and cheap liquidity are fueling a global stock market bubble. This will be debated for a long time, still.

As for the Big 4 counters, a few notable things have happened.

Analysts have steadily upgraded their fair value ratings for the Big 4. That in turned fueled spectacular rallies in the likes of SUPERMX and KOSSAN. HARTA had its own huge rally, but historically it had always commanded a higher valuation premium due to its high nitrile glove product mix.

Hell, just look at TOPGLOV now:

So what has happened within the past month is that the entire market is now contemplating much higher fair value possibilities. This in turned drove stock prices higher - way higher than in March or April.

We are not gloves perma-bulls. We are only here to highlight the facts, and all that has happened in just one month since our blog post.

Things may turn south quickly, and this post is not a rallying call to buy Big 4 gloves until they gain another 20%.

In our view, the very best stocks are both investible and tradeable. The Big 4 clearly meet this criteria, and we have already traded countless times in and out of this story.

The most important thing for traders or investors is that ideas make money. We're not too attached or have fallen completely in love with the sector; our preference is to zig when the market zags.

So we did what we always do :

Take profits lah!

Sunday, 21 June 2020


1. Malaysia’s leading thermoform food and beverage packaging manufacturer that is set to benefit from more stringent hygienic standards in a post-COVID world.

2. New forays into face mask and face shield manufacturing offer attractive double digit margins, higher ASPs, and a positive addition to existing businesses.


3. The price of resin  (which makes up more than 50% of operating cost) are currently near 10-year lows. Lower costs means improved margins going forward.

4. For its F&B packaging products, SCGM has moved into producing higher-margin offerings, offsetting lower revenues with an improved bottom line.


5. The company is well positioned to capitalise on the change in consumer trends (preference for standalone F&B packaging such as ready-to-eat trays, meat trays, salad bowls) and higher health standards (regular usage of face masks and face shields for day-to-day or work purposes) amid the COVID-19 pandemic.

6. Since February 2020, SCGM allocated RM1 million to purchase 5 ultrasonic sealing machines to make face shields and one new face mask machine.

Face shields production capacity : 21k pieces per day

Face mask production capacity : 50k pieces per day

7. The investment is reaping immediate rewards as the pandemic worsened globally; SCGM supplies to local hospitals and pharmacies. Sales from these ventures will be immediately recognised in the latest reporting quarter.

8. From 18 Feb to 31 March 2020 (just 1.5 months), the Company recorded sales of RM2.9 million from its face shields production.

9. At optimal production capacity, the new businesses can potentially generate > RM4 in sales PER MONTH. Remember that the capex outlay for the machines was a mere RM 1 million.

10. As at 9MFY20, exports accounted for 35% of total sales. The company can utilise its existing distribution network and key contacts in the US and Europe for its new healthcare venture, with demand still outstripping supply in emerging/developed nations where COVID-19 still has not peaked in terms of average daily confirmed cases and fatalities.


11. Stock price performance:

April - 19 June 2020 : 71%

May - 19 June 2020 : 27%

June - 19 June 2020 : 1% (recovery to RM1.84 from a recent low of RM1.60)

Price performance last week, from trough to closing : 15%

12. Last close at RM1.84, suggestive of resilience amid broader market volatility and positive pre-earnings expectations.

Comparison with healthcare sector stocks since beginning of June:
less impacted than glovemakers' big fall recently

13. Target Price : RM2.20 (PublicInvest, Trading Buy rating), with the facemask/face shields ventures potentially being an upside rerating catalyst. 20% upside from current levels.

14. The new business contributions, and the prospect of improved margins, are set to be reflected in SCGM’s upcoming quarterly earnings, set to be released by 30 June 2020 (next 2 weeks).

15. PublicInvest’s 17x projected P/E is well within the historical average (FY18 : 16.2x) with the company rebounding from a net loss in FY19.

16. The earnings contribution from the new healthcare businesses have not yet been imputed in PublicInvest’s earnings projection for FY20-22, which is suggestive of further upside.

PublicInvest Research Reports : 31 March 2020 and 1 April 2020
RHB Investment Bank ’20 Jewels 2020’ Research Report
Bursa Malaysia filings

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