Supermax and other Latex Glove Companies.

the global demand on latex gloves has been growing exponentially in recent years. Since this growing trend of glove market is not likely to stop for the coming years (though it may slow down gradually) , the latex glove manufacturers will benefit a lots from it.

Malaysia's companies are the largest suppliers of latex gloves in the world. There are several latex glove companies listed on Bursa Malaysia. Here's a simple comparison based on their annual report FY2006:

Obviously, the three largest companies are:

1. Topglove
2. Kossan
3. Supermax

The huge production capacity of these companies ensure that they can produce gloves with lower cost than their competitors. Hence they can maintain their profit margin while keep the selling price competitive. When I decided to buy a glove company, I only considered this three biggest companies. After doing some study, I've chosen to invest in Supermax.

The first reason is Supermax has a better earning power. I've create a table to make a comparison between 3 companies:

(I don't have the EBITDA data of Kossan, but the comparisons of EBITDA should be similar to PBT and PAT)

Clearly, Supermax has a highest profit margin among them. This is a result from the continuous effort of its managment in controlling the cost. The 2% difference in profit margin can make a very big difference, especially when the market become gradually saturated and tough competitions occur. So, I think Supermax will become the last winner, though its growth rate in recent years is a little slower than Topglov and Kossan.

At the end of Sep-2007, when the privatisation of Seal Polymer is completed, Supermax is going to beat Kossan and become the 2nd largest glove company. If Supermax privatise APLI in the future, it will become almost same size as Topglove.

Another reason I choose Supermax, is because the price of Topglove and Kossan are already too high. Look at some figures relating the share prices of these companies:

		Topglov	Supermax	Kossan
	PAT '2006 (RM million)	78.4	39.7	39.5
	No. of share (million)	300	227	160
	Earning per share (sen)	26.2	17.5	24.7
	Share price (RM)	6.2	2.4	4.5
	Equity per share(RM)	2.0	1.2	1.3
	Price/Earning ratio	24	14	18
	Price/Equity ratio	3.1	2.0	3.4

* the no. of share & equity per share are based on the latest quarterly report.

Due to my investment prinples, I'll never buy a company that has a PE higher than 15, no matter how good is the company. So, I'll never consider to buy Topglove though it's the biggest latex glove company, unless its share price fall below RM4.50. Besides, Supermax's Price/Earning ratio and Price/Equity ratio is significantly lower than the other two, This make Supermax a better choice for a secure investment.