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RHB bullish on glove industry as vaccine deployment could boost global usage by up to 7%

As each contact with a person during vaccination should lead to the usage of one pair of disposable gloves, a two-dose vaccine deployment could generate a demand of 18 billion pieces per annum in the short term.

VIP Gloves Ltd - RHB bullish on glove industry as vaccine deployment could boost global usage by up to 7%
VIP Gloves is planning a new production facility in the outskirts of Kuala Lumpur

A vaccine deployment could be a new demand source for up to 18 billion pieces of gloves per annum, or 7% of global demand in 2019, according to a report from Malaysian financial services group RHB.

Glove manufacturers including VIP Gloves Ltd (ASX:VIP), Top Glove (KLSE:TOPGLOV) and Hartalega (KLSE: HARTA) are expected to benefit from the rise in demand.

The following is an extract from RHB’s research update:

Stay OVERWEIGHT. Pfizer and BioNTech’s vaccine has completed Phase 3 trials with a 95% success rate. Preliminary data suggests it confers protection, but data so far is only up to two months. The news is not a total surprise to us. We maintain our sector call, as the long-term demand outlook for gloves remains positive. Recall that in 2011, post the influenza A virus subtype H1N1 (H1N1) outbreak, demand only dropped 1% YoY. A vaccine deployment itself could boost global gloves usage by up to 7%.

95% success rate for Pfizer-BioNTech’s COVID-19 vaccine based on Phase 3 trials. According to Reuters, final results from the COVID-19 vaccine trials showed that a shot had a 95% success rate and two months of safety data. This, according to the 18 Nov report, paved the way for the drug makers to apply for an emergency US authorisation “within days”. We note that this is a Phase 3 trial with 43,000 volunteers, out of which there were 170 COVID-19 cases. Out of these 170, only eight with the disease had been given the shot rather than a placebo. On 17 Nov, Reuters reported that Moderna's experimental COVID-19 vaccine was “more stable than expected at temperatures that ordinary refrigerators can provide and can be distributed using existing cold-chain shipping and storage infrastructure”. Reuters also stated that Moderna’s experimental vaccine was 94.5% effective in preventing COVID-19 based on interim data from a late-stage trial. Note that Moderna’s vaccine is interim data and not yet final.

2-month protection so far, as protection length remains under study. Preliminary data at this current juncture suggests the Pfizer-BioNTech vaccine confers protection, but the data so far is only up to two months. Pending further data, it is still unknown how long the protection can last. Additionally, the arrival of a vaccine could lead some people to lower their guard, hence making COVID-19’s spread easier. Lastly, it will take time for the vaccine to reach each country for widespread distribution.

Not a total surprise to us. Recall that in our 13 Aug report, we have mentioned that the first dose of a COVID-19 vaccine may be available in the next 1-4 months. However, this successful Phase 3 result was slightly faster than expected, vis-à-vis our original 1Q21 assumption.

A vaccine deployment itself could be a new demand source for gloves of up to 18bn pieces pa (PPA), or 7% of global demand in 2019. We have assumed that 60% of the world’s population of 7.5bn will get the vaccine in two doses annually. As each contact with a person should lead to the usage of one pair of disposable gloves, a vaccine deployment will generate demand of 18bn ppa in the short term. If the vaccine protection period is only up to a year, this 18bn ppa demand will recur on an annual basis. This is equivalent to 6.8% of the 263bn ppa global gloves demand in 2019.

Maintain OVERWEIGHT, as the long-term outlook remains positive, given that, post H1N1, demand only dropped 1% YoY. By using the H1N1 outbreak as an example, after it ended in 2009-2010, gloves demand dropped only slightly in 2011 YoY by 1.3%, or 2bn to 148bn ppa. Our sector Top Picks: Top Glove and Hartalega.

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