二哥：Glove Industry （转）

http://2ndbrother2.blogspot.com/2010/04/glove-industry.html

Few days ago, Am Research issued a report on the glove industry. It raised its concern on the over expansion of the industry players like Topglove, Supermax, Kossan, Hartalega and others. Good job by Am Research, it pointed clearly that there might be margin squeeze due to the over expansion which may cause supply excessively more that demand, appreciation of Ringgit Malaysia and increase of raw material cost. It argues that the profit margin of these companies might be “normalized” to previous level before epidemic of H1N1.

A friend of mine call me, he said he intend to take this opportunity to buy more Topglove and Hartalega. I asked him, do you agree with the arguments of Am Research? I warned him that what Am Research pointed out make sense at surface. I said if you are no sure than what is the reason to buy more, then don’t buy? Then he asked for my opinion, my view will be as below:-

1. This industry still will grow (this market will never shrink – especially for disposable type). There are still huge potential from China and India market due to their level of awareness. The demand of latex glove from these market will increase substantially. While nitrile glove will gain more footings in developed country like US & Europe.

2. Over the past years, glove makers are growing under this so called ““normalized” period of time. So what is so special about the current state of demand over supply for the previous few months? Public Bank is growing year after year although margin is under squeezed, because the overall market is still growing; and it is able to eat into other players’ market share. Similar to glove industry, the most efficient player (latex glove – Topglove, nitrile glove – Hartalega) will grow more than the average growth rate of the industry. They are able to take market share of others. Stay away from inefficient players.

3. The business franchise of this industry still intact. There is no substitute for their product, it so simple. They also still able to pass the cost increase and the Ringgit appreciation to customers. Which business in Malaysia possesses these competitive advantages? Just let me know, sure I will bet big on that.

4. Trust the best captain of this industry instead of analyst. At no time an analyst will know the business better that the player. Analyst will remain as analyst; the businessman will make more money. As investor just applied business-like investment approach and strategy.

I definitely welcome the price dropped, and ready to buy more if the price is right.