Southeast Asia is by far the biggest producer of rubber in the world. It is, therefore, unsurprising to find that most of the largest glove manufacturers in the world also reside in this region. Some prominent rubber glove manufacturers listed in Singapore and Malaysia include Top Glove Corporation Berhad (SGX: BVA), Hartalega Holdings Berhad (5168.KL), Kossan Rubber Industries Bhd (7153.KL) and Riverstone Holdings Limited (SGX: AP4).
With that in mind, I thought it would be useful to give a quick primer of some important facts of the rubber glove industry.
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Demand for rubber gloves is growing at 8-10% a year
The global rubber glove industry is expected to grow at an annual growth rate of 8-10% over the next few years. This growth will be driven by increasing consumption in emerging markets and the growing need for healthcare services worldwide.
With Malaysia accounting for around 63% of the total rubber glove industry, followed by Thailand at 21% market share and Indonesia with 3% in 2016, the rubber glove industry in the region is well-placed for the future.
Dependent on raw material prices
However, there are also many challenges that industry players face. For one, the cost of raw material prices often fluctuate from quarter-to-quarter and can result in volatile earnings and gross profit margins.
We can take the example of Top Glove. Over the past five years, the raw material cost has been volatile and has resulted in varying gross margins for the company. Gross margin during the period has ranged from as high as 22.1% in 2015 to a low of 17.75% in 2017.
Foreign currency risk
Another important factor to take note of when investing in glove manufacturers is the fact that foreign currency fluctuations can have a sizable impact on its business operations.
Most glove manufacturers supply to clients outside of their geographical location and sell in a foreign currency. Therefore, any foreign currency fluctuations can heavily impact the bottom line.
As you might have guessed, many companies have taken advantage of the competitive edge that the region affords due to the abundance of rubber supply. Consequently, there is heavy competition in the space, with big players expanding their capacity each year, increasing the supply further.
Add to the fact that rubber gloves are effectively a commodity-like product, the high competition in the industry can have an adverse effect on selling prices.
The Foolish bottom line
The rubber manufacturing industry can be a rewarding space to invest in. The growing demand for rubber gloves and the competitive edge that Southeast Asia affords provide an excellent platform for glove makers to expand. However, at the same time, investors need to be warned about the challenges and volatility that these manufacturers may face.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Riverstone Holdings Limited and Top Glove Corporation Berhad. Motley Fool Singapore contributor, Jeremy Chia, owns shares in Riverstone Holdings Limited.