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Surviving The Impact of Covid-19: Healthcare the sector with the most deals

Surviving The Impact of Covid-19: Healthcare the sector with the most deals

05 Jan 2021

The vast business opportunities in the healthcare sector that have arisen because of the Covid-19 pandemic have seen many companies on Bursa Malaysia, including those whose core business is not related to the healthcare segment, venturing into the sector this year.

It is easy to see why. Rubber glove manufacturers, for one, have been recording super-high profits in this unprecedented time, and the momentum is likely to continue till at least the first half of 2021. Though interest in glove stocks has subsided of late, companies that have diversified into the glove business are set to come onstream from next year and reap the benefits of strong demand for gloves even in a post-pandemic era.

Mah Sing Group Bhd is one of these companies. The property developer recently obtained shareholders’ nod to diversify into glove manufacturing and is not ruling out the possibility of venturing into related healthcare products such as personal protective equipment (PPE) and pharmaceutical or medical products and services.

Its share price, which has been below RM1 in the past two years, touched an intraday high of RM1.47 on Oct 20, after its glove foray was revealed.

Titijaya Land Bhd is another developer that is proposing to diversify into healthcare products, with a distribution agreement with Rubberex Corp (M) Bhd. Under the pact, China’s Sinopharm Medical Equipment Quanzhou Co Ltd will buy gloves from Titijaya, which will be supplied by Rubberex. At the same time, Titijaya will buy the PPE and medical products from Sinopharm, which will then be sold and distributed to Rubberex.

Karex Bhd, the world’s biggest condom maker, also joined the fray after announcing plans to manufacture and sell gloves through its wholly-owned subsidiary Innolatex (Thailand) Ltd in August.

It will set up a new manufacturing facility in Hat Yai, Thailand, to supplement its existing operations there. Some RM40 million have been earmarked for the initial stage, to set up two production lines, which are expected to have an annual production capacity of 500 million pieces of gloves. At the time of writing, there was no update.

Meanwhile, AT Systemization Bhd, an integrated designer and manufacturer of industrial automation systems and machinery, appeared on the radar screen of investors when it announced that it was building a glove manufacturing facility in Perak. The stock’s trading volume hit 2.66 billion shares in a single day in November, accounting for 23% of the total share trading on Bursa. Its shares hit a peak of 30 sen on Nov 16 from below 10 sen early this year.

Having said that, none of the companies’ new glove ventures have taken off. Hence, their financial performance will be closely watched going into 2021.

Glove demand to stay robust

According to the Malaysian Rubber Glove Manufacturers Association (Margma), the global shortage of rubber gloves will last beyond 1Q2022. The current order lead time is at least six to eight months.

Global glove consumption is forecast to reach 390 billion pieces in 2021 from 330 billion pieces this year, representing an 18.2% growth year on year, says its president Denis Low.

CGS-CIMB Research is of the view that the global supply growth in the next two to three years is unlikely to catch up with the demand increase. This is despite the glove makers’ aggressive expansion plans to capture the demand growth.

“This is also assuming that there would be no supply disruptions (due to unforeseen circumstances) or delays in expansion plans (construction delays, raw material supply constraints and so on),” it says in a Dec 15 note.

The research house foresees global glove supply will grow 15% to 25% annually in the next two to three years, on the back of higher usage and increased healthcare awareness.

In a Dec 16 note, Hong Leong Investment Bank (HLIB) Research notes that demand requests from customers have not been decreasing or slowing down despite the positive inflow of vaccine news. “Rather, the actual demand and supply for gloves would be dependent on when the vaccine is ready for mass immunisation.”

HLIB Research estimates that the total production capacity for the big four glove players will increase 14.6% from 185.08 billion pieces this year to 212.15 billion pieces in 2021, and a further 6.3% to 225.48 billion pieces in 2022.

Companies associated with the glove industry are also beneficiaries of the strong global demand for gloves. Shares in HLT Global Bhd have jumped sixfold year to date, underpinned by its rubber glove dipping line manufacturing business. ES Ceramics Technology Bhd, which makes hand formers used by the glove industry, more than doubled during the same period.

Beneficiaries of the healthcare wave

Given that wearing face mask is mandatory in most countries, companies involved in the manufacturing of PPE are also riding the healthcare wave.

Those that have diversified into this segment this year include Notion VTec Bhd, Komarkcorp Bhd, Iconic Worldwide Bhd, SCGM Bhd and Pecca Group Bhd.

Not forgetting companies that produce the raw materials — the likes of Tek Seng Holdings and Oceancash Pacific Bhd — to manufacture face masks and protective gowns.

Luxchem Corp Bhd’s latex and nitrile processing and compounding business has also been given a boost by the surge in demand for PPE and rubber gloves.

Texchem Resources Bhd, which is engaged in the restaurant, industrial, food and polymer engineering sectors, has received the Malaysian Investment Development Authority’s green light to produce face shields.

Other chemicals companies such as Samchem Holdings Bhd, Hexza Corp Bhd and Hextar Global Bhd are also beneficiaries as their chemicals are used for the manufacturing of personal care products.

Many may not be aware that a company such as D’Nonce Technology Bhd is a beneficiary of Covid-19. It is involved in producing packaging boxes for major glove makers in Thailand.

Also, Supercomnet Technologies Bhd, an original equipment manufacturer in the automotive cables and medical devices industry, has seen a spike in order volume since the pandemic began.

Meanwhile, technology solutions provider K-One Technology Bhd has been granted a licence to manufacture and distribute low-cost ventilators for Covid-19 patients. In September, it also obtained approval from the Medical Device Authority, an agency under the Ministry of Health, to supply nasal swabs in Malaysia.

Over in the vaccine space, the impact of the government’s direct deals — with vaccine developers such as Pfizer, Covax and, most recently, AstraZeneca — on the so-called private arrangements remains unclear at this juncture.

Bear in mind that any vaccine to be distributed in Malaysia has to get the green light from the National Pharmaceutical Regulatory Agency (NPRA).

In the case of Pfizer, Health director-general Tan Sri Dr Noor Hisham Abdullah said last week that its vaccine will have to go through a five-phase evaluation process in Malaysia before it can be approved for use by the public. The first phase of the process can take between 90 and 120 days.

A day later, however, he said the Ministry of Health would try to cut the evaluation time for the Pfizer vaccine to less than 90 days, so that a conditional approval for the drug may be granted before next March.

Pharmaniaga Bhd, Bintai Kinden Corp Bhd, Ho Wah Genting Bhd, Solution Group Bhd, Kanger International Bhd, MyEG Services Bhd, Yong Tai Bhd, Nexgram Holdings Bhd and Metronic Global Bhd have announced their vaccine deals.

So far, only Solution and Pharmaniaga will be carrying out the fill-and-finish process in Malaysia. Recently, Solution obtained the NPRA’s approval for the design plan and layout of its vaccine fill-and-finish facility.

Solution has been the best performer in terms of share price, rising 1,500% since early this year.

Pharmaniaga’s fill-and-finish is pursuant to its agreement signed with Serum Institute of India Pvt Ltd in October. The fill-and-finish product will be marketed, distributed and sold exclusively in Malaysia by Pharmaniaga.

The recent news of Bintai Kinden’s two largest shareholders selling stakes in the company caught many by surprise, as the potential earnings from the new venture has yet to kick in. Its second-largest shareholder, Nusankota Development Sdn Bhd, sold its entire 14.4% stake in the engineering and construction company. Also, the largest shareholder, Bintai Holdings (M) Sdn Bhd, disposed of an 8.14% equity interest in the company, reducing its shareholding to 9.05%.

Still, not all healthcare ventures have been successful. Early this month, Hong Seng Consolidated Bhd, formerly known as MSCM Holdings Bhd, and RP Integrated Bhd mutually terminated their medical drugs and vaccines joint venture just two months after signing the deal. Hong Seng’s 51%-owned HS Bio Supplies Sdn Bhd and RP Integrated had entered into a partnership to pursue distributorship and opportunities relating to medical drugs and vaccines from China’s Shanghai Fosun Pharmaceutical Group Co Ltd.

Source: The Edge Markets

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