Top Glove

[Temperament]

The latest result of Top Glove. Lower ASP seems a common issue among glove makers in M'sia...

Well, think about it this way - when everyone manufactures the same gloves (nitrile for healthcare industry) and sells them en mass to more or less the same customers, you end up with an obvious price war situation. Competitive theory dictates that for any one player to gain market share at the expense of another, he would have to price his (commodity) products lower in order to induce customers to buy from him. Add to the fact that all the gloves players (Supermax, Hartalega, Kossan, Riverstone, UG Healthcare and Top Glove) are expanding capacity rapidly in the next few years, as evidenced by their stated plans in their Annual Reports, and you have a rather obvious situation brewing.

While the pie may be growing for all players, as the industry is expanding, the question here is whether the aggressive ramp up in capacity would result in a CAGR increase which exceeds the industry's growth rate. What would the implications be?

No player would be willing to give up "expansion" and capacity increases because doing so would make them fall behind their competitors, which is an unacceptable situation. But what investors have to measure is whether the incremental returns from the incremental increase in capacity are exceeding the firm's cost of capital - if it does not, then it makes sense not to expand and simply to rely on status quo and let others expand and erode their returns instead.

How about another possibility?
The coy who has very deep pocket can flood the market and drown out as many small competitors as possible.
My 2 cents.