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Debating whether or not gloves are necessary for vaccination to support Supermax stock prices is simply barking up the wrong tree. The details are in the numbers.
If we assume that gloves are used to vaccinate the entire world population, the number of gloves required to get this job done is only 30 billion (i.e., 1 pair of gloves per shot and two doses per person). We know it is impossible to vaccinate 7 billion people in one year. Should the world target to complete this exercise in 4 years, it would be a pretty tall order. That means only 7.5 billion gloves are required per year for this purpose. When we contrast this 7.5-billion to Kuan Kam Hon's (Hartalega) statement of 120-billion shortfall in glove supplies, the picture becomes clearer that whether or not gloves are used for vaccination is quite immaterial to the overall earnings of Supermax.
In my opinion, the following are key considerations that will determine the extent of the Supermax rally in the coming months and years:
- Glove companies will have at least 4 clear quarters of super earnings visibility (this is material in building up the sentiments for the next cycle of the glove rally).
- Should the West succeed in curbing the spread of covid infection by May this year, it would not mean that the demands for gloves would fall off the cliff. Gloves will continue to be used in hospitals, clinics, other industries, and other countries still mired in coronavirus infections.
- The pandemic has shifted the demand curve for gloves. Now, countries outside North America and Western Europe are learning the value of gloves as PPE. Industries other than healthcare have also learned to use gloves.
- The butadiene shortages will ensure that glove shortage will not be met by expanding glove manufacturing capacity any time soon. The Petronas Chemical & LG Chem joint venture to manufacture butadiene will only begin construction this year. The construction will not be completed until 2023, barring any delays.
- The new South African and British variants are a dark horse that may exacerbate the fight against the coronavirus pandemic.
- The mRNA and mDNA vaccines may have longer-term side effects (already 23 deaths are credited to Pfizer vaccine in Norway).
- On a macro basis, 25% of small businesses in the US have gone bust. Overall, consumers are a lot poorer. This translates into lower purchasing power worldwide. There is no way that, on average, businesses can return to pre-pandemic profitability. The current disconnect between the stock markets and real markets must return to equilibrium. When that happens, stock prices will fall. Investors will flock to profitable companies like - you guessed it right - gloves.
My bets are on Supermax to go higher - much higher.
Look out for my next essay - SUPERMAX: WILL IT BE TAKEN PRIVATE?
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