More stringent hygiene in U.S. hospitals and labs could boost sales for Malaysian rubber glovemakers who produce three out of every five pairs used in the world.
Demand for medical gloves is seen increasing ahead of guidelines from the U.S. Pharmacopeia (USP) Convention that come into effect December 2019. Known as the USP 800, the best-practices standard for pharmacies and hospitals will recommend health workers don two pairs of gloves to handle hazardous drugs.
As the U.S. accounts for a third of global demand for medical gloves, the new standards - if widely enforced - could push demand from that market well above its "normal" 8 percent to 12 percent annual growth rate, said Malaysian Rubber Glove Manufacturers Association (Margma) Vice President Supramaniam Shanmugam.
"If it's mandatory - then boom!" Supramaniam said in an interview in Kuala Lumpur last Thursday. "I know the amount of gloves that we export is going to be double now. But we're still studying how the implementation is going to be like."
Top Glove Corp., the biggest of Malaysia's 10 publicly listed rubber glove-makers by revenue, derived 31 percent of financial year 2017 revenue from North America, while rival Hartalega Holdings sits at about 59 percent. The region accounts for about a fifth of sales at Riverstone Holdings and UG Healthcare, both Singapore-listed but Malaysia-based producers.
In a market update this week, Singapore Exchange noted that the three glovemakers on its bourse - Riverstone and UG Healthcare along with Top Glove's secondary listing - averaged a 12-month total return of 35 percent. The exchange said prospects for the global rubber glove industry were robust given expanding health-care demand.
Ross Cameron, a portfolio manager at Northcape Capital, which manages A$10 billion ($7.3 billion) in assets under management and owns 45.3 million shares in Top Glove, said the potential impact from the forthcoming guidelines is "not at all" priced in.
"This is a material positive uplift to earnings as volume numbers will have to be increased as a consequence," Cameron said by phone from Japan. "It is kind of a kicker to what is already an attractive story."
Other investors say it's hard to quantify the exact impact from the new guidelines.
"It's true that USP 800 might drive some incremental demand for gloves, although the quantum of that additional demand may not be material in the context of current global glove demand," said David Smith, the head of corporate governance at Aberdeen Standard Investments, which owns Riverstone shares.
Still, Riverstone sees its customers buying more gloves from the third or fourth quarter of 2019. "It's an additional 3.5 billion pair of gloves every month," said Chief Executive Officer Wong Teek Son. The company, which expands capacity annually by 1 billion to 1.5 billion gloves, will need to step up production further, he said.
Margma's Supramaniam says Malaysian producers can step up production if required as the utilization rate at the country's 100-odd factories stands now at about 75 percent.
"The industry is absolutely prepared," he said. "By simply tweaking the manufacturing process a little bit, we're home and dry."
This article was written by Abhishek Vishnoi and Anuradha Raghu, reporters for The Washington Post.