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KUALA LUMPUR: Kenanga Investment Bank Research is bullish on Mah Sing Group Bhd
in glove manufacturing, as it expects average glove sales prices to remain high until 2022 due to supply shortages.
“We believe Mahsing’s foray into the glove industry is not too late,” he said, adding that he expects the group to achieve a payback period of 1.5 to two years with capex of about RM150,000.
In addition, he said Mah Sing’s balance sheet size and existing experience within the plastics manufacturing industry will provide the advantage to drive operations faster and more competitively.
“We raised fiscal year 21 earnings by RM84m (or 75%) to RM196m after incorporating the new earnings stream derived from its glove segment,” he said.
Kenanga assumes ASP of US $ 55 per 1,000 gloves and has conservatively assumed that Mah Sing will only sell its first batch of gloves on July 21 due to potential teething problems.
He has also assumed a conservative cost of $ 30 per 1,000 gloves compared to Mah Sing’s guide of $ 25-27 per 1,000 gloves, as the latter may have to pay premiums for parts supplies amid a shortage.
Kenanga updated Mah Sing to “beat” it with a higher sum of parts price target of RM1.05.
With the new segment, it changed its valuation method to sum of parts, thus valuing the new glove segment at 10 times the price-earnings of fiscal year 21.
“We chose to apply only a 10x PE for the division versus the average PE of 18.4x attributed to our coverage of the Big 4 (Topglov, Harta, Kossan and Supermx) given the large difference in capacity sizes, industry experience and also the fact that Mahsing’s operations have not yet started, which could face setbacks in the beginning, “he said.
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