Business

Saturday May 30, 2009

Rubber gloves industry gains in times of global infectious disease outbreak

Stories by ELAINE ANG


ALTHOUGH not entirely insulated from global economic catastrophes, the local rubber gloves industry generally stands out as a beneficiary, unlike most other industries, when there is a worldwide spread of infectious diseases.

During the Severe Acute Respiratory Syndrome (SARS) and bird flu outbreaks, most glove makers experienced an uptrend in terms of revenue, capacity expansion and bottomlines.

Lim Cheong Guan ... Top Glove experienced 5%-7% increase in demand for its medical gloves during the SARS outbreak

For example, during the SARS outbreak in 2003, which lasted about nine months, Top Glove Corp Bhd and Kossan Rubber Industries Bhd outperformed the broader KL Composite Index by 141% and 33% respectively.

In 2003, Top Glove’s revenue jumped 52% and net profit grew 47% year-on-year underpinned by increased demand for medical gloves while Kossan’s revenue and earnings growth was at a more modest 16% and 8% respectively.

This is because rubber medical gloves are considered the most basic and affordable form of protection from viruses in the healthcare industry.

Top Glove executive director Lim Cheong Guan says the group experienced a 5%-7% (five billion to seven billion pieces of gloves) increase in demand for its medical gloves during the SARS outbreak.

“We have seen tremendous growth for our gloves since then as governments impose new health regulations and the public have taken more proactive steps in increasing hygiene and healthcare standards,” he adds.

With this, he foresees a 5% increase in global demand for medical gloves, due to the outbreak of influenza A (H1N1) virus, mostly from the United States, Mexico and other South American countries.

Total annual global consumption was estimated at 135 billion pieces last year and growth has been a staggering 15% to 20% per annum for the past few years.

AmResearch is maintaining its assumption of 8% to 10% growth yearly for the next few years.

Datuk Seri Stanley Thai ... expects overall sales to grow 3% to 5% if the influenza A outbreak is prolonged

The influenza A outbreak has had a positive impact on Supermax Corp Bhd.

Executive chairman and group managing director Datuk Stanley Thai expects overall sales to grow 3% to 5% if the outbreak is prolonged.

“We have seen a steady increase in demand mainly from Central, North and South America. Thus, we foresee higher profit contribution from our distribution centres this year,” he says.

Kossan Rubber Industries Bhd group corporate affairs senior manager Edward Yip, however, sees a mild impact from the influenza A.

“Business is running as normal. We do not really see any sudden skew in new demand for gloves, perhaps because our plants are running at full capacity,” he points out.

Yip feels that the current influenza A outbreak is different from SARS and the bird flu.

“People are now more alert after the bad experience with SARS and the bird flu. The world is now more prepared to face disease outbreaks, thus a shorter time may be needed to control and stem the outbreaks,” he says.

Affin Investment Bank sees the influenza A outbreak as a possible re-rating catalyst for glove manufacturers (depending on the extent and length of the outbreak) judging from the SARS experience.

Rubber glove companies will also benefit from a weaker ringgit and easing latex prices, it adds.

Despite being resilient and practically recession proof, the rubber glove industry has also been slightly hit by the global economic slowdown.

OSK Research analyst Jason Yap says the global economic slowdown has affected the non-medical glove industries such as auto, food processing and electronic and semiconductor related businesses by 10% to 20%.

Yip acknowledges that the economic uncertainties in the near term and apparent global slowdown since the last two quarters of 2008 has reduced the demand for gloves for non-medical applications.

“The demand for medical application gloves, which is our main business segment, could also be slightly affected should the current economic slowdown worsen and be prolonged,” he says.

  • E-mail this story
  • Print this story