VIP Gloves Limited (ASX:VIP) is confident of continued growth as a second wave of COVID-19 strengthens around the globe, increasing the need for effective personal protection equipment (PPE) including nitrile gloves.
While the virus itself is contributing to growing sales of PPE, the future post-COVID-19 also appears positive as use is almost certain to remain high as people maintain increased hygiene levels.
The evidence of increased rubber glove use is plain to see with glove manufacturers experiencing strong growth.
VIP’s market cap has grown to around $108.1 million and shares have increased from 3.1 cents on June 24 to 22 cents on August 10 and today has traded up to 15 cents.
Glove production is centred on Malaysia and other manufacturers are experiencing unprecedented growth, including leading company Top Glove Corp Bhd, according to a Citi Research note.
Top Glove ‘a clear winner’
In a report in The Edge Markets Malaysia, Citi stated that in a bull scenario Top Glove’s share price could reach RM77.60 “as the group is poised to raise prices and capitalise on strong demand for gloves, given the group’s large manufacturing capacity”.
The research house reiterated that Top Glove is “a clear winner” by virtue of it having the largest capacity, allowing the group to lead the pack in raising glove prices.
“Capacity-wise, the group also has the most near- to medium-term capacity coming to absorb pandemic-driven demand; our bull-case valuation of Top Glove is RM77.60,” said Citi, which has a target price (TP) of RM48.10 and “buy” rating for the glove manufacturer.
It said Top Glove’s inexpensive but effective products were benefiting from a surge in demand, putting it in a good position to absorb additional orders.
The demand-supply imbalance has enabled the group to aggressively raise its average selling prices (ASPs), which it said could drive “an unprecedented margin and earnings upcycle”.
“Buy” calls maintained
Citi Research also maintained its “buy” calls for Hartalega Holdings Bhd, Kossan Rubber Industries Bhd and Supermax Corp Bhd.
VIP Gloves manufactures nitrile gloves, which are Type-1 allergy-free, puncture-resistant, have good barrier protection against infection and contamination and are suitable in medical and high-risk tasks.
Sales orders have been filled through to the second quarter of 2021, with recent orders at higher sale prices which vary, depending on the specifications and volume.
With the impact of COVID-19, the Malaysian Rubber Glove Manufacturers Association is projecting an estimated global demand of 330 billion gloves this year and expected annual growth of 20% this year.
Need for effective PPE
While concerning, reports from various countries of increasing COVID-19 cases and varying causes also point to the need for the use of effective PPE.
Increasing reports of people testing positive after handling the packaging of frozen food indicate thew need to use effective gloves at all stages of food handling.
In China, there have been reports of people testing positive after touching imported frozen chicken wings and others from people touching the surface of packaging on imported frozen seafood.
Similar concerns have been expressed in New Zealand in relation to that country’s second outbreak with one link to a cold storage facility.
While health authorities in both countries and the World Health Organisation say there is no direct evidence that the virus can be transmitted as food-borne or in frozen food packaging, the use of effective PPE at all levels of preparation is critical.