South East Asia is by far the largest producer of rubber in the world. According to a research report by PR Newswire, Asia accounted for 93% of the total rubber production in 2016, with Thailand and Indonesia contributing to the bulk of production. Unsurprisingly, products that require rubber can be manufactured in this region at much cheaper rates than anywhere else in the world, giving companies here have a low-cost moat that is virtually impossible to erode. With that in mind, here are two industries that can benefit from the massive rubber production.
Rubber glove manufacturers
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Malaysia is by far the largest producer of rubber gloves in the world. It accounts for about 60% of the total global output of rubber gloves in 2017 and is hoping to expand its market share by another 5% by 2020.
A report by PR Newswire forecast global rubber markets to grow at an annual compounded rate of 7.95% between 2017 and 2023. The increasing demand has enabled companies such as Top Glove Corporation Berhad (SGX: BVA) (7113.KL) and Riverstone Holdings Limited (SGX: AP4) to increase their capacity over the last few years.
Another company. Hartalega Holdings BHD (5168.KL), a major player in the nitrile gloves sector, completed a new manufacturing complex in Sepang, Malaysia, increasing its production capacity by 27 billion pieces in the first quarter of 2018.
Although recent spikes in rubber prices have led to lower gross margins, the long-term outlook for glove manufacturers remains mostly positive. Besides the three companies mentioned earlier, Supermax Corporation Berhad (7106.KL) and Kossan Rubber Industries BHD (7153.KL) are some of the other players in the industry.
As sexual education and awareness grow, it’s unsurprising to see global demand for condoms increase in tandem. According to a report by PR Newswire, the condom market is expected to reach US$11.1 billion by 2023, growing at a compounded annual rate of 8.62%. The market is supported by high growth in Asian countries such as India, China and Japan.
Malaysia is home to the largest condom maker in the world, Karex Berhad (5247.KL). A report by Forbes shows that the company accounted for 15% of the global production in 2016.
However, the company has faced multiple challenges in recent times, including higher minimum wages in Malaysia, and higher crude oil and rubber prices, which affected manufacturing cost. Global headwinds such as the strengthening of the ringgit against the US dollar added to the woes. This has resulted in dampening its profitability over the last three years, with its share price falling.
That said, the long-term outlook for the company remains positive as global demand continues to grow. If the company can manoeuvre through its near-term difficulties, it can turn a corner and be on the right track for growth.
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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.