New Glove Players: Will the High Entry Cost Pay Off?

Despite the high cost incurred to set up glove production lines, the number of Malaysian public-listed companies that are jumping into the healthcare-related industry is increasing. The interest in such businesses is gaining momentum in the face of the yet-to-abate COVID-19 pandemic outbreak.

The new entrants include precision engineering outfit AT Systematization Bhd, crude palm kernel oil producer Green Ocean Corp Bhd, construction firm Vizione Holdings Bhd, IT solution provider MSCM Holdings Bhd, automotive battery maker GPA Holdings Bhd and property player Iconic Worldwide Bhd, among others. Rubber-related Karex Bhd, which manufactures condoms, has also ventured into glove production.

Many of the companies, being new players in the glove scene, are starting from scratch right from land acquisition, which makes the entire process to commence operations longer. Some will be using their existing facilities to produce the gloves and would just need to invest in the production lines. Some like MSCM have rented a factory for the purpose.

Interestingly, such companies’ share prices have tended to shoot up even before any official announcement was made. Their new ventures range from the manufacture of personal protective equipment (PPE), the production of rubber gloves, to potential distribution of COVID-19 vaccines.

The downside risk is that glove demand may decrease gradually upon a vaccine is introduced. Also, more players or suppliers could lower their average selling price (ASP) to secure market share. Apart from not having economies of scale, the new entrants may not have the reach and network of the supply chain that large glove companies currently have. So, will the high cost of entry eventually pay off?

Reference:

1. Many new hands in glove sector, 5 Sep 2020, The Star

2. Will the rush into healthcare-related ventures pay off? 3 Sep 2020, The Edge