Chinese Glove Maker Calls off Expansions (credit @terence775)

$HARTA / 5168 (HARTALEGA HOLDINGS BERHAD) $TOPGLOV / 7113 (TOP GLOVE CORPORATION BHD) $SGX-AP4

INTCO is a high-tech manufac company that produces medical consumables and equipment. During 2017-2019, the net profit of INTCO was around 145-180 million yuan annually. In 2020 and 2021 however, their net profit went up to 7-7.5 billion yuan annually. Their share price has fallen considerably since 2021 and now has a market cap of roughly 16B yuan.

According to the latest board meeting, $INTCO is stopping their capacity expansion project for high grade medical gloves which would have added another 40 billion gloves to global supply; the investment for this project would have been 40 billion yuan.

This is their response to shifts in market demand for gloves. Besides curbing investment risks, they mention that they did not satisfy their coal consumption indicators as required by the government which makes the project even more unfeasible.

But this is only news for one project, INTCO still has many plans to expand capacity in other provinces and Vietnam, though its less certain that they will follow through.

At present, they are already producing 75 billion gloves from 4 production bases, which means if the project were to proceed, it would have added 53% to INTCO's production capacity.

Compared to 1Q2021, where demand for gloves has peaked, 1Q2022 is seeing a drop in net profit by 97.8% yoy.

From this shocking drop in profits, it's not far-fetched at all to think that many more glove-producing giants will start scaling back on their production and shift their focus elsewhere. With the big fish cutting down supply for gloves, does that mean local producers like $HARTA / 5168 (HARTALEGA HOLDINGS BERHAD) get a bigger slice of the pie for global glove supply?

Currently, Harta is nearing RM3.00.