+ New capacity installed in April 2021. A 20% expansion in capacity to 3.4bn pieces of gloves was completed in April 2021. However, production was affected by temporary plant shutdowns due to Malaysia’s enhanced movement control order for factories located in Seremban.
– QoQ weakness in earnings. Since peaking in 3Q21, we believe industry nitrile glove selling prices declined around 20% to US$80 in 4Q21. This brought down revenue and earnings QoQ.
Industry glove selling prices have fallen from US$80 in 4Q21 to likely US$60 in 1Q22e. We do not expect prices to improve even in 2Q22e. Customers are hesitant to stock up, fearful of inventory losses as prices spiral downwards. Prices could deteriorate more as Malaysian manufacturers’ production recovers from the COVID-19 mandated shutdowns and cuts in utilisation. Chinese manufacturers are another source of disruption, with their aggressive expansion in nitrile capacity.
The positive for UG Healthcare is an expansion in effective capacity of at least 20% in FY22e. There would be another 35% jump in effective capacity to 4.6bn gloves in FY23e. Improved scale brings down production costs. Exposure to latex gloves and emerging markets could also offset falling nitrile glove prices, especially in developed markets.