Thursday, June 30, 2011

Record ....

I am not saying this because I long Hartalega. It is plain rude to tease your competitor in public with this. I quote :

“The holiday [good times] for nitrile glove makers is over. There was a 22% jump in nitrile costs from May to June as oil prices spiked. We believe players with huge nitrile capacity would see margins squeezed in 2Q due to the high prices,” Thai told reporter.

Thai reckons there will still be a market for nitrile gloves, pointing out that Supermax’ planned expansion is mostly in the nitrile segment. However, with additional capacity in nitrile gloves coming on stream, margins of over 25% will be a thing of the past, he added.

“I’m looking at margins of about between 10% and 15%,” he said.

The raising cost of NBR ( nitrile glove raw material ) is not something new. It has been raising substantially for the past few quarters even though as crazy as the late. However, Hartalega is able to mainain its' net margin all this while above 25%. It is simply because of their they are technological prowess. They are the lowest cost producer. The raising nitrile cost of 22% would be a challenge. Having said that, with this raise, the selling price of nitrile will still be cheaper than power free latex glove. It still have its' advantage. At the same time it will discourage more players into nitilre glove market. It is also simply no wise to have a price war with the lowest cost producer. Let's see how the financial report ending June 2011 pend out.

I never like a boastful CEO. So I would like to put this in record and see who will have the last laugh. If you can only acheive 10-15 % margin, that desn't mean your competitor can't squeeze that out. Adios. Happy Trading

Saturday, June 25, 2011

Debt Crisis Debecle

We are now at the cross road. Shall the Greek default on it's debt, it would certainly creat huge cripple across the globe. Forget about what Mr. Tan TB used to laud about, the decouple theory. The theory didn't hold in the last crisis, it certain would not hold should it happen again. What would the domino effect ?
1. Spain, Italy etc ( the PIIGS ) would felt it. Their debt is is going to soar and making it more painful to borrow or maybe not at all. Should that happen they would be the one to default next. In fact they would be temp to default. Why pay ? Greece doesn't pay why shall I ?
2. The big European banks which hold the Greek debt would have to mark the debt down. Again, that may insolvent the banks which lead to severe credit crunch. It could be a Bear Stern case or even worse the Lehman Brother case which bring down the whole system down.
4. Credit default swap would soar. Making it is very expensive to insure the credit. It will shake the derivative market which may lead to another AIG senario.  
4. The Greek may be kicked out from Europe or maybe even Spain, Italy etc who knows ?
5. In order to help the Greek, the Europe may seek protection among themselves. All sort of levy maybe imposed might be introduce to Asian countries especially China in order to make them grow fast enough to solve their debt problem. That maybe lead to a hard landing on China.
6. US would pass the debt level in no time. No more political drama to raise the US debt level.
7. Some European leader would have to wave bye-bye to their presidency.
8. Street protect across Europe.
9. I don't have to elaborate more that Euro would drop and gold would soar.
10. The double dip would materialize, expect another round of QE3 and so on in Europe. Recession would follow which may last long.

On the bright side, the ECB should be better prepared this round. Having said that are they tackling the core problem correctly ? Is Greece a solvency problem or a liquidity problem ? Should it be the 1st case, it make no sense to lending more money to them. The same issue would appear again in couple of years if not months. Let pray hard that it would avoid a total collapse.

Wednesday, June 8, 2011

M & A

As 2nd brother said, one of the method of exponential growth is by Merger and Acquisition. Now we are seeing Maybank and CIMB fighting for RHB CAP. So why not Top Glove marries Hartalega or Harata lega taking Top Glove as wife.
I don't see any con for this marriage. With Top glove's production lines and Hartalega's technology know how, it's growth would be exponential in matter of couple of years. I am not surprise it will command 50% of the world rubber and nitrile gloves supply. So :
1) Should Mr. Kuan buy over Mr. Lim. Financially does Hartalega able to pull the trick ?
2) Should Mr. Lim buy over Mr. Kuan. Does Topglove able to flick it's financial muscle do the trick ?
3) How about a new entity, a share swap and etc. All just like Malakoff case, a SPV to merge it and delist both of them.

What would you do if you are Mr. Kuan/Mr. Lim. Maybe CIMB is drafting the merger proposal. Who knows ? I still believe there is a win-win situation here. If both parties are willing, I don't think the deal to be pulled ? What do you think ?