5 Things To Know About Enviro-Hub (SGX: L23), A New Player In The Gloves Industry
In the early days of the COVID-19 pandemic, stocks of glove companies (both the supplies and the shares) were in hot demand globally. As healthcare providers rushed to stock up sufficient supplies of personal protective equipment (PPE) including gloves, investors rushed to buy the stocks of glove suppliers. In fact, the top performing stock on SGX for 2020 was Medtecs International, a supplier of medical consumables and PPE, with a stock gain of 2600%. While it has been more than a year since the start of the pandemic, the continued surge of the virus (including the more infectious Delta variant) has ensured that the demand for medical PPE has remained high.
It is in this environment that Enviro-Hub (SGX: L23) has repositioned its business focus to recycling of e-waste and supply of medical supplies, especially specialty gloves. In June 2021, Enviro-Hub received FDA regulatory clearance for its nitrile medical-grade examination gloves, which means that the company will be able to export their medical-grade gloves to US, where they command a higher price. This allows Enviro-Hub to join the estimated 20% of glove production that has obtained the 510(k) FDA certification.
Additionally, the company has been streamlining their business operations and have been divesting business segments that are not line with their new business focus: the synergistic segments of recycling e-waste and supplying medical PPE. This includes the sale of their property investments which were used to generate rental income. With the divestments, the company expects to double down on sustainability through their e-waste recycling operations and enter the new business segment of medical supplies.
For interested investors who expect the glove industry to continue its strong performance, here are 5 things to know about Enviro-Hub’s business.
With a diverse portfolio, how does the Group ensure that synergy between the various subsidiaries is maintained?
Enviro-Hub’s businesses include (i) trading, recycling and refining of e-waste/metals; (ii) piling contracts, construction, rental and servicing of machinery; (iii) property investments and management; and (iv) plastics to fuel refining.
Going forward, the Group will be focusing on 2 main business segments – recycling of e-waste and the supply of healthcare products.
The Group’s recycling segment collects most of the e-waste from large multinational corporations (MNCs) with electronics manufacturing, who require equipment such as gloves and personal protective equipment (PPE) in their manufacturing process. With the acquisition of Pastel Gloves, the Group has plans to expand product range to include PPE and sees significant cross-selling potential across the business segments.
The Group recently acquired Pastel Gloves. Could you elaborate on the rationale and future plans for the segment?
Pastel Gloves is a glove manufacturing entity and is part of the Group’s expansion plans to venture into the broader market of supplying healthcare products. Management expects the venture to:
- provide additional and recurring revenue streams to the Group;
- tap into sustained demand for healthcare products (including rubber gloves); and
- create revenue synergies with our existing recycling business
In the first phase of expansion, Pastel Gloves has 2 production lines with a total production capacity of 450-500 million gloves per year and is running near full utilisation. The remaining 4 production lines with a total production capacity of approximately 920-970 million gloves per year are expected to be completed by 4Q2021. Pastel Gloves is in the midst of identifying land for its next phase of manufacturing capacity expansion.
Pastel Gloves’ target product mix include: 70% specialty gloves, 20% nitrile gloves and 10% latex gloves. Specialty gloves (e.g. healthcare gloves with specific weight and black-coloured gloves, which are commonly used in the food & beverage, tattoo and law enforcement industries) tend to carry higher margins than normal nitrile gloves.
Who are some of your competitors? What differentiates Enviro-Hub from them?
Enviro-Hub’s competitors include:
- Glove manufacturers (e.g. Top Glove Corporation, Hartalega Holdings, Kossan Rubber Industries and Riverstone Holdings).
- E-waste recycling service providers. Despite the fragmented market, we have identified only 5 players (mostly privately held entities) of a similar scale to Enviro-Hub in Singapore, who typically compete for big scale e-waste recycling projects.
Pastel Glove is led by industry veterans Mr. Law Siau Woei and Mr. Choo Kuan Ping who have over 20 years of experience in the industry. Mr Law developed Black Dragon® examination gloves (subsequently acquired by Microflex Corporation in 2010), which is recognised as the pioneer in high quality disposable black latex examination gloves in the tattoo, medical and law enforcement industries. Going forward, the Group will continue to tap on the founders’ deep expertise to target specialty gloves, which typically command higher margins (between 10-15% higher) and has less competition compared to normal gloves.
Pastel Glove also received US FDA 510(k) clearance to market nitrile medical grade gloves in the US, expanding its geographical reach.
What is the growth outlook for the glove industry? How would these trends benefit the Group? ▪
According to the Malaysian Rubber Gloves Manufacturers Association (MARGMA), global demand for gloves in 2021 is expected to grow to 420 billion pieces, with demand expected to remain robust until 2Q2022 with potential to last into 2023 (link).
While average selling prices (ASP) of gloves are expected to drop due to rising supply and acceleration in vaccination campaigns, selling prices are expected to remain elevated as compared to pre-COVID-19. As such, we expect manufacturersto maintain healthy profit margins.
In the long run, we believe that the decline in ASP may be healthy for the industry by eliminating speculative addition in supply capacity by opportunistic players. This may also give rise to potential acquisition opportunities for Enviro-Hub, who has been mindful in our capacity expansion, and is focusing on specialty gloves. We are of the view that specialty gloves have higher barriers to entry (due to requirements in R&D) and have higher margins.
Why should investors take a closer look at Enviro-Hub? ▪
Enviro-Hub has announced a series of corporate activities to restructure and optimise capital. This includes the disposal of some of our properties to focus on the supply of healthcare products and recycling of e-waste, moving the Group to a relatively asset lighter position.
With our proposed acquisition of the remaining 75% stake in Pastel Glove, the Group’s earnings is expected to improve in the near term driven by
- heightened demand for gloves (supported by a profit guarantee of US$18 million);
- potential merger & acquisition activities and;
- revenue synergies from the supply of healthcare products and recycling of e-waste segments.
As a show of confidence in the Group’s prospects, our executive chairman and CEO, Mr Raymond Ng, has also raised his stake by purchasing 10 million shares of Enviro-Hub, raising his total stake to 34.65%.
Mr Law Siau Woei, one of the co-founders of Pastel Glove, will also be receiving approximately half of his proceeds from the sale of Pastel Glove in new Enviro-Hub shares issued at S$0.08 per share. Following which, he will become the second largest stakeholder in Enviro-Hub with close to 19% stake in the enlarged share capital.
Having a “moat” or a competitive advantage is something many investors look for in companies they invest in. Can you share how Enviro-Hub has a strong business advantage?
Enviro-Hub taps on the expertise of industry experts to ensure that their operations are run with operational excellence. For eg. For Enviro-Hub’s glove making entity, Pastel Glove, it is led by industry veterans Mr. Law Siau Woei and Mr. Choo Kuan Ping who have over 20 years of experience in the gloves trading and manufacturing industry. Mr Law, in particular, pioneered Black Dragon® examination gloves during his stint in Medtexx Partners in 2010, which are recognised as the pioneer in high quality disposable black latex examination gloves in the tattoo, medical and law enforcement industries. Black Dragon® examination gloves was subsequently acquired by Microflex in 2010.
As a result of Mr Law’s and Mr Choo’s production expertise, Pastel Glove was able to receive US FDA 510(k) clearance to market Nitrile medical grade gloves, allowing it to export its gloves to the US. Going forward, the Group will continue to tap on the founders’ strong R&D and operational expertise to target specialty gloves which typically carry higher margins and has less competition vs commodity gloves.
Editor’s Note: Some answers for this article were extracted from the SGX 10 in 10 series published on 21 July 2021 and have been republished with permission. You can read more on the SGX website.
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