Koon Yew Yin, one of Malaysia’s best stock pickers, notes that the COVID-19 pandemic is affecting all companies except for medical glove stocks and other companies making medical products for the prevention of the virus.
As a result, the demand for gloves far exceeds supply and all glove makers can increase their selling prices easily to make more profit.
Based on this factor, investors have been buying glove stocks aggressively to push up the share prices a few hundred percent in the last few months.
Higher lead time for orders
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.
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.
FY2020 profit doubles
VIP’s revenues during FY20 was up by 17.1% to more than $13.696 million and profit for the year, after-tax, was up 102.4% to $116,056.
An increase in revenue from nitrile glove production is expected to continue into FY21 as the company improves operating efficiencies from current manufacturing operations.
This will include the commissioning of additional nitrile glove production lines at the company’s integrated manufacturing facility in Malaysia.