Rising latex price & the glove-manufacturers

In this post, we'll see how the rising latex price affect the profitability of the latex-glove companies. (Latex is the raw material for glove-manufacturing, accountable for about half of the operational costs)

Here's the historical price movement of bulk latex:

source: Malaysian Rubber Board, http://www2.lgm.gov.my/Mre/YearlyAvg.aspx

[updated 30-10-2008: pls click here for the updated-verion of the chart.]

From the chart, we can see the recent price of latex is about 150% higher than that in 2001 & 2002. This definitely will rise the operational cost of latex-glove companies. But will it have a significant impact on their profitability?

The following graph shows the EBITDA margins and PAT (profit after tax) margins for the three largest glove-companies in Malaysia:

While the latex price rise significantly from 2002 to 2006, the profit margin of these glove-manufacturers just show a small decline in the same period. This small decline in profit margins could be cause by other factors, e.g. rising financial cost for expansion of production lines.

So, I think we can say the rising price of latex has a minimal impact on the profitabilily of latex glove companies. They are always able to pass on the rising cost to their customers.

Again, I feel that Supermax is the best choice (for investment) among this 3 companies . From the charts, we can see that Supermax's EBITDA margin in 2006 is about 1% higher than that in 2002, while Topglove's EBITDA margin shows a decline of about 2%. This shows that Supermax's management is better in maintaining the company's profitability.