Amala Balakrishner Published on Fri, Jul 09, 2021

Singapore-listed Enviro-Hub Holdings — known for its forays in the recycling and property investments — has diversified into a new business: Glove making. The company, led by executive chairman Raymond Ng, is in the midst of acquiring Ipoh-based glove maker Pastel Glove. The target was set up last September by Law Siau Woei and Choo Kuan Ping — who hold stakes of 97% and 3% respectively — to meet the surge in demand for rubber gloves during the Covid-19 pandemic.

On Jan 12, Enviro-Hub announced it is investing US$125,000 ($168,970) for a 25% stake in Pastel Glove, on top of a loan of US$4.87 million. On May 21, Enviro-Hub announced it is acquiring the remaining 75% for $46.8 million, which will be paid using $23.4 million in cash.

The remainder will be settled by issuing 292.5 million new Enviro-Hub shares at 8 cents each. This will make Law the second largest Enviro-Hub shareholder, with a stake of around 19%.

Ng, who will remain the largest shareholder, says that investing in the healthcare sector was a long time in the making, and not because of the pandemic. “We felt a change was needed far away before Covid-19,” says Ng in an interview with The Edge Singapore.

The company, which started off as a provider of heavy construction equipment, moved into recycling and refining of e-waste and metals in 2005. It then pivoted into the property sector when the commodities market took a hit in 2013.

Now with its recycling arm suffering from a lower volume of collections and a scantier pick in the number of suitable property projects, Ng has once again been scouring for opportunities elsewhere.

An entry into the healthcare sector was an ob- vious choice. Before the pandemic, Enviro-Hub had already made “a bit of profit” trading face masks. The growth potential of this sector encouraged him to seek other related opportunities, says Ng.

The opportunity with Pastel Glove was brought by Adrian Toh, a former portfolio manager with RHB Asset Management and Azure Capital. He joined Enviro-Hub as its chief investment officer (CIO) earlier this year.

Toh believes glove-making is a good fit as a healthcare arm could eventually complement the company’s e-waste business. For instance, a manufacturer or life sciences company purchasing gloves from Enviro-Hub can choose to also send its e-waste over for processing, and adding that Toh says is already fielding such enquiries.

Sealing the deal

Ng says the decision to invest in Pastel Glove was made in less than a day. “I always feel that when something good is brought to you, you need to think of the risks involved,” he adds. In this instance, Ng believes the returns will outweigh the risks.

Despite not being able to visit the facilities at Pastel Glove due to the movement control restrictions, Ng took a leap of faith, making what he calls a “hard statement” to Toh.

He adds: “If you walk out of this room, please don’t come back. If you want, let’s seal the deal and move forward”. But his confidence in the deal was motivated by two factors — Toh’s sincerity and Law’s standing as an “iconic guy who can convince the market”.

Law pioneered the black-coloured disposable latex examination glove in 2010. Such gloves have since been patented under the Black Drag- on name and are used in the tattoo, medical and law enforcement industries. He was also a vice-president with a subsidiary of Latexx Partners, the sixth largest glove manufacturer in the world prior to its takeover in 2013. The other Pastel Glove shareholder Choo was a consultation manager with K & L Total Solutions, whose clients are glove makers.

Law and Choo’s strong industry knowledge has already proved beneficial: Pastel Glove speedily secured the 510(k) regulatory clearance from the US Food & Drug Administration (FDA) for its medical grade examination gloves, which command an average selling price (ASP) of between 10% and 15% higher than normal gloves. Toh estimates that only 20% of glove mak- ers in the market have obtained this 510(k) FDA certification.

Creating a niche

Personal protective gear has become one of the hottest commodities on the market since the pandemic struck. Nguyen Thi Kim Cuc, a senior economist at the Asean+3 Macroeconomic Research Office (Amro), estimates the demand for rubber gloves globally will jump by 15% to 20% per annum in the next few years, from a growth rate of less than 10% in the last decade.

With its base in growing natural rubber, Malaysia has close to 70% global market share, hav- ing produced 240 billion pieces last year. With active expansion plans in place, Nguyen predicts that Malaysia is poised to sell more gloves in the years ahead.

Meanwhile, the industry is going through an unprecedented boom. For example, for the nine months ended May 31, Top Glove reported earnings of RM7.26 billion ($2.3 billion), more than four times the whole of the previous full year ended August last year.

With such gains, new players — including the likes of Enviro-Hub and Aspen Holdings — have entered the fray. But the latter was embroiled in a controversy in April: Aspen had on April 13 announced that it had clinched a US$210 million gloves supply order from Honeywell. However, it retracted the announcement on April 24 because of a “communication oversight between the parties”.

Enviro-Hub was also in the spotlight when it drew a query from the Singapore Exchange after announcing its FDA 510(k) approval nearly a month after receiving it on May 13. To this the company said it was because it took time for the database showing these approvals to be updated. This also served to “risk announcing misleading information inadvertently”, Toh adds.

Besting the competition

From its two operating lines in Ipoh, Pastel Glove produces around 500 million glove pieces per annum. Of this, around 80% are latex gloves while 20% are nitrile gloves. It is looking to add six lines by the end of the year, so that it can produce 1.4 billion pieces of gloves per annum, where 70% of the output will be so-called specialty gloves, while 20% will be nitrile and the remaining 10% will be latex.

Toh and Ng believe their product mix will help set them apart from the competition. The average selling prices of so-called commodity gloves have been down by around 30% to 40% from the levels at the height of the pandemic. There has also been an increase in the payback period to more than three months.

In contrast, specialty gloves have been seeing an ASP decline of just 5% to 10% from their peak 2020 levels. Specifically, these gloves weigh around 10g a piece and are “not really easy to do” as compared to a typical commodity nitrile glove weighing just 3.5g. Specialty gloves have more exacting requirements, so its production speed tends to be 20% lower than that for commodity products.

But what it does not command in volume, it will make from higher margins. Toh says the gross profit margin of specialty gloves averages at around 65%, higher than the 45% expected for commodity gloves.

As such, he and Ng expect this specialisation to rake in stronger profits in the longer term. Despite the better margins, the big players are not likely to muscle into this market segment too because of the relatively low volumes, they add.

Toh and Ng are also optimistic of a pick-up in its recycling business in the next year. Enviro-Hub’s processing capacity stands at 3,600 tonnes per annum, between its two facilities spanning 350,000 sq ft. This gives it a net margin of around 5% to 10%, depending on the mix of metals sold. The company is in the midst of expanding its processing capacity to 5,100 tonnes per annum.

Higher profits

Prior to its foray into the healthcare sector, Enviro-Hub logged losses of $990,000 for the year ended Dec 30 last year, from earnings of $298,000 in the preceding FY2019. Total revenue for FY2020 was $30.8 million, down 10% y-o-y.

But if things go the way the parties intend to, Enviro-Hub can look forward to a different set of numbers down the road. Under terms of the acquisition of Pastel Glove with Law and Choo, the sellers have put in a profit guarantee of US$18 million over the next three years.

Over the past few months, trading interest in Enviro-Hub has picked up significantly. Last January, when Ng put up his bungalow for sale, the asking price of $63 million was 2.5 times that of the company’s market value of around $25 million, based on its then share price of two cents.

Enviro-Hub’s share price started surging morethan a month before its initial Pastel Glove investment was made. From three cents in the middle of last November, the share price hit 10 cents in less than two months. 

Year to date, Enviro-Hub’s shares closed up 22.53% to 8.7 cents on July 7, valuing the company at $107.92 million.