VIP Gloves Ltd (ASX:VIP) is set to enjoy strong revenue and earnings growth in the next two financial years as four new production lines come on-stream progressively and demand for gloves continue in a post-COVID 19 setting.
The company said heightened hygiene awareness and standards globally owing to the pandemic would ensure sustainable demand for personal protection equipment (PPE) products.
It noted that government agencies and non-governmental organisations (NGOs) were bypassing traditional distribution channels and approaching glovemakers directly for ‘spot purchases’ at huge premiums for quick deliveries.
Additional capacity would be well absorbed by the strong and sustainable demand for nitrile gloves, it said in a corporate presentation.
VIP Gloves has cleared all of its old orders and financial year 2021 will reflect higher average selling price, boosting margins.
In the near-term, it will focus on building up order books and improving production efficiencies, which will ensure a sustainable revenue stream and bottom line in the medium term.
New production lines
Production lines three and four were fully commissioned in July 2020 and additional production lines will be commissioned in stages over the next 18 months, ensuring a continuous growth trend in financial years 2021 and 2022.
Lines five and six are targeted to be commissioned in the first quarter of 2021.
Demand scenario post-COVID 19
Even with a vaccine in place, VIP Gloves believes demand will continue to remain robust.
It said structural step-up in industrial and household usages would be common amid heightened safety and hygiene awareness as the world adapted to a “new normal”.
There is expected to be a lag time of at least two-three years in vaccinating people globally as accessibility and affordability issues remain.
Further, the effect of a vaccine, if any, remains unknown.
VIP Gloves also noted that glove usage per capita was still at its infancy in less developed countries versus developed nations.
Less developed nations make up 80% of the world population but only account for around 30% of global glove usage.
The awareness for healthcare and proper hygiene has become an essential part of day-to-day lifestyle for all.
Demand is expected to grow by 27% to around 330 billion pieces per annum this year and up 15% to around 380 billion pieces in 2021.
This figure is set to rise by 12% to 428 billion pieces in 2022, according to MARGMA.
Higher average selling price is expected to remain prevalent in the foreseeable future on the back of global capacity constraints.
There are unprecedented capacity roll-outs by global glovemakers as well as non-traditional glovemakers to meet demand.
Glove makers are now looking at more than 12 months lead time for forward orders, given the current sales backlog as against one to two months during pre-COVID levels
Global inventory levels have also fallen drastically to less than 10 billion pieces (equivalent to 10 days of stockpile) from 60 days previously.
VIP sees minimal risk of an over-supply situation as new capacities will only come onstream progressively and should be able to meet the rising global demand.