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MSWG Weekly Newsletter 10 December 2021 (English)

Understanding the glove sector stock rally conundrum

 

The writing has been on the wall since late 2020 that glove counters would encounter softening market demand and selling prices after a meteoric rise in both demand and share price which commenced at the height of the COVID-19 pandemic (around mid-2020).

Given the forward-looking nature of the stock market, it must be pointed out that there are two contradicting-yet-valid views among investors that are impacting the direction of glove stocks in current times:

  • The first view is that with the advent of COVID-19 vaccines, the pandemic will be over, prompting demand for gloves to fall (hence, earnings of glove makers will revert to pre-pandemic levels); and
  • The second view is that glove demand will stay high with increasing awareness over hygiene and health (demand for gloves will stay healthy in the post-COVID-19 pandemic era) especially with the advent of the new Omicron variant.

MSWG Weekly Newsletter 03 December 2021 (English)

Customer Concentration Risk: How over-reliance on one major customer can pose major threat to business

 

There are a few invaluable lessons that companies and investing public can learn from the recent downfall of ATA IMS Bhd.

From a solely business perspective, the Johor-based electronic manufacturing service provider (EMS) was operating amid an extremely high customer concentration risk so much so that the loss of one customer was capable of crippling most of its revenue stream.

Recently, the decision of high-tech home appliance maker Dyson Ltd to terminate its contract with ATA IMS on grounds of labour abuse allegations had caught the company and its shareholders off-guard. Sales to Dyson accounts for over 80% of ATA IMS’ revenue.

In a bourse filing dated 25 November, ATA IMS announced that it had received three notices of contract termination on 24 November from Dyson Operations Pte Ltd and Dyson Manufacturing Sdn Bhd in respect of the following contracts with effect from 1 June 2022: