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Health & Biotech
Special Report: The company is rapidly expanding its production capacity, with its current sales order book already filled until June 2021.
ASX-listed VIP Gloves (ASX:VIP) is racing to meet demand in the booming market for nitrile disposable gloves.
The company already has an order book that’s full to the middle of next year. It’s now adding additional production lines to meet a surge in demand in the wake of the COVID-19 pandemic.
Nitrile gloves are recognised as a premium product in the rubber glove sector. While they are made via similar manufacturing process to traditional latex gloves, the material is more puncture resistant and less prone to causing a skin reaction.
As a result, for producers with a strong brand in the space, it also offers higher margins.
Global investment group CLSA is particularly bullish on the industry’s medium-term outlook.
In a research report released last week titled ‘Rational Exuberance’, CLSA analyst Stephanie Cheah said a global supply shortage is expected to run until at least the end of 2022 as annual demand growth increases by more than 15 per cent, up from its previous growth rate of 8-9 per cent.
And Malaysia, where VIP Gloves’ production hub is located, is recognised as a market leader in the sector.
Speaking with Stockhead, VIP Gloves non-executive director David Low said the company has a unique opportunity to take advantage of its position as a quality manufacturer based in Malaysia.
He highlighted the company’s recent sales update, where it announced a full 12-month pipeline of new sales, including recent orders with “higher sale prices which vary depending on specifications and order quantities”.
Accompanying the sales announcement, VIP also announced a small capital raise which Low said will be crucial as it ramps up capacity to meet demand and drive further sales growth.
VIP’s produces around 680 million set of nitrile gloves from its existing six manufacturing lines, and it’s now in the process of adding a further four lines.
“Our current factory already has enough space to build four more lines, so we just need to get the machinery in and install it to get it up and running,” Low said.
“In that sense it’s important to strike while the iron is hot. The market is booming right now so we need to quickly expand. What we’ve seen is that demand is highly inelastic — whatever we can produce, customers will buy.”
“So there’s been a lot of activity in the market and our goal is to meet as many of those orders as we can.”
With its additional lines in operation, VIP expects to have capacity to produce more than one billion pieces of gloves this financial year.
It’s also awaiting the approval of a sale-and-leaseback agreement of the factory land it owned – a process which was held up due to the pandemic – which the proceeds will allow the company to further expand production.
And with a global sales pipeline now locked in over the medium term, the company is also well placed to book increasingly strong profits in the years ahead.
The net result is an ASX-listed enterprise that gives domestic investors exposure to a global market, and an established competitive advantage through its Malaysian manufacturing hub.
Despite those tailwinds, the company’s current market capitalisation of just $37m gives it the potential for “enormous growth” as production capacity expands, Low said.
Health & Biotech
Health & Biotech
Health & Biotech
