Rubber gloves have been an important component in the healthcare industry, as doctors and nurses in clinics and hospitals use them for a variety of purposes, from examining patients to carrying out medical procedures. Interestingly, the rubber glove industry is heavily weighted to Asia, in countries such as Malaysia and Thailand, as the raw material required for such gloves, latex, is easily available thanks to the abundance of rubber plantations in these countries.
On the Singapore Exchange Limited (SGX: S68), there are three listed glove manufacturers: Top Glove Corporation Bhd (SGX: BVA), Riverstone Holdings Limited (SGX: AP4), and UG Healthcare Corporation Ltd (SGX: 41A). Top Glove is also dual-listed on Bursa Malaysia (KLSE: 1818). The Malaysian bourse has another three large listed glove companies: Hartalega Holdings Bhd (KLSE: 5168), Supermax Corporation Bhd (KLSE: 7106), and Kossan Rubber Industries Bhd (KLSE: 7153).
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These glove manufacturers have been enjoying years of steady and consistent growth, but I’m curious if this is still the case. If it’s not, then investors should be cautious and dig deeper into the industry and these companies before committing their capital. I decided to explore two angles, the year-on-year revenue growth and also the year-on-year net profit margin.
The table shows all six companies enjoying healthy double-digit revenue growth. The average growth rate across the companies is almost 14% year on year, and it signals that there is continued strong demand for rubber gloves across the world. This is a healthy sign that growth is still present for all of the glove companies — and the industry.
Demand is likely to remain high as there is a pressing need for better healthcare solutions in many emerging countries, so these six companies are likely to continue enjoying strong revenue growth as long as they do not expand too fast and push the glove industry into an over-supply situation.
Net profit margin
When it comes to net margins, though, almost all companies (except for Kossan) displayed a dip in their net profit margins. This could be the result of a few possible factors: higher raw material costs, an inability to price their products higher, and higher overall operating costs. The average decline in net profit is 2.4 percentage points.
The Foolish conclusion
From the above data, it appears that glove manufacturers are still seeing healthy revenue growth. What they all need to be wary of, though, are rising expenses eating into their net margins. Investors need to monitor these companies carefully over the next few quarters to see if cost pressures continue to build up, as revenue growth alone is not attractive if costs balloon and result in declining net profits.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore recommends shares of Singapore Exchange Limited, Top Glove Corporation Bhd, and Riverstone Holdings Limited. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.