ASX-listed VIP Gloves ramps up production, undeterred by falling glove ASPs

This article first appeared in The Edge Malaysia Weekly, on November 22, 2021 - November 28, 2021.
Yang: We are confident and optimistic about the profitability of our business, especially when all 16 production lines are fully operational by 2023. (Photo by VIP Gloves)

Yang: We are confident and optimistic about the profitability of our business, especially when all 16 production lines are fully operational by 2023. (Photo by VIP Gloves)

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AT a time when most glove players are experiencing a decline in average selling prices  (ASPs) as well as margin compression, Australia-listed nitrile glove maker VIP Gloves Ltd remains unfazed and is ramping up production to meet surging global demand.

VIP Gloves currently runs six manufacturing lines — four single-former and two double-former — with a total production capacity of about 64 million gloves a month at its sole manufacturing plant in Beranang, Selangor.

Managing director Jimmy Yang Chin Kar says the company plans to nearly triple the number of total production lines to 16 by 2023, with Lines 7 and 8 slated for completion and commissioning as early as next month.

“By December, the two additional lines will boost total output to 936 million gloves this year, from 768 million now,” he tells The Edge in an interview.

The group is also building a new factory, which will produce 1.6 billion gloves upon completion in two years. “This will bring our total annual output to 2.6 billion gloves by 2023 — almost triple our current capacity,” says Yang.

He notes that eight production lines will be installed at its second plant (Factory 2) on land adjacent to the existing factory. The capital expenditure for Factory 2 is estimated at A$30 million (RM91 million), to be funded via a combination of borrowings and internal funds.

“The new capacity from Factory 2 will cater for our growth in the financial year ending June 30, 2023 (FY2023), while the full impact on earnings will be realised in FY2024, as capacity will increase progressively when the production lines are installed in stages,” he says.

VIP Gloves reported a 3,986.5% rise in profit after tax (PAT) to A$4.74 million in FY2021, up from about A$116,000 in the previous year. The stellar performance was attributed to increased production capacity and strong demand for its products, resulting in an increased ASP for nitrile gloves in FY2021 and forward sales contracts to December this year.

Listed on the Australian Stock Exchange (ASX) in 2016, VIP Gloves is involved mainly in the manufacturing of disposable nitrile gloves. Prior to glove manufacturing, the group started as a manufacturer of machinery components for glove manufacturing giants through its wholly-owned subsidiary KLE Products Sdn Bhd.

In mid-2016, VIP Gloves ventured into glove production by commencing two double-former rubber glove manufacturing lines. The group added two single-former manufacturing lines in June last year, then adding two more in March this year.

“It was a struggle in the first couple of years when we ventured into nitrile glove manufacturing, but the work we’ve been doing is starting to bear fruit,” says Yang.

Notably, VIP Gloves received approvals from the US Food and Drug Administration (FDA), Conformité Européenne (CE) EU Examination Certificate and Australian Therapeutic Goods Administration (TGA) this year, allowing the group to expand its customer geographical reach to the highly lucrative markets of the US, Europe and Australia.

Unlike its bigger peers, VIP Gloves’ products are sold on an original equipment manufacturer (OEM) basis. Most of its customers are wholesalers and distributors in Malaysia, which in turn export their products to retailers and end-users around the world.

“All of our revenue in FY2021 was generated from the local market. We received the CE EU Examination Certificate only in January this year, followed by FDA and TGA approvals two to three months ago,” says Yang.

With the requisite regulatory approvals in hand, VIP Gloves is now gearing up to grow its customer base and expand its footprint overseas, which will enhance the group’s reputation and position in the glove industry.

“With the strong financial performance registered in FY2021, we are confident and optimistic about the profitability of our business, especially when all 16 production lines are fully operational by 2023,” he says.

VIP Gloves is also mulling plans to launch an in-house brand, selling directly to users worldwide. It has no plans, however, to manufacture natural rubber gloves for now.

“The nitrile gloves market is expected to reach US$15.9 billion by 2024, given its superior margin and properties over rubber gloves. Malaysia is expected to contribute almost two-thirds of global supplies, followed by Thailand. To capture the rising demand, we will continue to focus on manufacturing nitrile gloves for now,” Yang says.

Highly fragmented and competitive industry

Yang says the decision to list VIP Gloves on ASX was made by the group’s late founder Chen Wee Min, following discussions with his business partners on the merits of being quoted on the bourse and the potential novelty effect from the status of being the only pure glove manufacturing play on an established stock exchange.

Yang acknowledges that glove manufacturing is not a common business and gained little attention in Australia prior to the Covid-19 pandemic. The global impact of Covid-19 has been unprecedented and staggering, however, with disposable medical gloves witnessing a positive demand amid the pandemic, thus shining the spotlight on this industry.

“It has resulted in investors across the region beginning to pay more attention to glove companies, including Australia.”

The major shareholders of VIP Gloves included Chen, who, along with strategic and friendly investors, held a combined equity stake of 45%. Chen passed away in May this year, and it is learnt that the estate is currently working with its Australian lawyer to transfer his shares to his daughter Chen Kay Wen, who is the executive director of VIP Gloves.

Yang concedes that the burgeoning demand and high ASP have helped established glove players to grow and encouraged new entrants. “We operate in a highly fragmented and competitive industry because of the large number of players. Any glove makers involved in the manufacturing and export of nitrile gloves are our competitors, as they offer similar products.”

While the ongoing pandemic has caused a surge in global demand for rubber gloves and led to an almost 100% utilisation rate among glove manufacturers, existing players have been increasing their production capacity and many new players have entered the market.

“The fact that VIP Gloves has been in the industry prior to the outbreak would enable us to have a slight advantage in terms of a lower gestation period,” says Yang.

“Despite the ongoing vaccination drive and decline in ASP, we are looking beyond the pandemic when things normalise, and expect demand for nitrile gloves to remain strong. This is owing to the rising awareness about the prevention of healthcare-associated infections, the growing demand for high-quality gloves and increased healthcare awareness and expenditure.

“There is no doubt that we are relatively small compared to other well-established glove makers locally. We compete with these players in terms of product quality, quick lead and delivery times, and competitive pricing.”

Asked whether VIP Gloves plans to undertake a secondary or dual listing on Bursa Malaysia, Yang says: “We do have that intention but have no plans yet. We will focus on executing our current growth strategies.”

The group employs about 170 people, of which 80% are foreigners, mostly from Nepal and Bangladesh. It plans to reduce its labour count by continuing to automate.

“We have put a special environmental, social and governance committee in place, which is headed by our chairman. ASX places paramount emphasis on ESG practices by companies under its care,” says Yang.

Shares in VIP Gloves have fallen 51% year to date to close at three Australian cents last Thursday, giving it a market capitalisation of A$27.61 million.

 

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