Embarking on a new venture. The rationale is to diversify from its mainstay, e-waste recycling and metal refining. Following up on our initiation report, we made a site visit on 5-7th Oct 22 to understand more about the new healthcare business segment: gloves manufacturing and retail pharmacy. This new business segment accounted for 14% of 1H22 revenue.
R Pharmacy targets to have 25 and 90 stores in the heartlands of Malaysia by Apr 23 and FY24E respectively. Currently, there are 7 operating stores. The management is scaling up their distribution centre to extract higher economies of scale as more stores start to operate. Half of the procurement team are pharmacists, hence able to identify more efficacious products, thereby lifting sales.
Pastel Glove is working on several initiatives to lift sales and margins: (i) Relevant certification to attract higher-tier customers; (ii) secure long-term contracts (6-12mths) for visibility; (iii) Gloniks, Pastel Gloves’ in-house brand, will be launched soon.
EVH trades at 1.0x P/B and 1H22 annualized EV/EBITDA of 16.2x.
Enviro-Hub Site Visit Notes
To recap, ENVH acquired 25% in Pastel Glove on Feb 21, and the rest of 75% on Oct 21. With Pastel Glove having a 40% stake in Pastel Care and the remaining held by Law Siau Woei, they opened their first retail pharmacy, R pharmacy, on 16th April 22 in Klang, Malaysia, targeting to be the leading healthcare supplier in the region. The healthcare segment contributes to 14% (S$3.3m) of total revenue in 1H22 but operating loss of S$0.2m.
R Pharmacy
The Group aims to open a total of 25 and 90 stores in the heartlands of Malaysia by Apr 23 and FY24E respectively. The criteria to set up a new store are (i) more than 6000 residents in the vicinity, and (ii) no other pharmaceutical competitors nearby.
Currently, there are 7 operating stores, with one projected to open on Nov 22 and 7 more expected to open on Jan 23. At the same time, the management is building up their distribution centre which will lower delivery costs from the economies of scale as more stores start to operate.
In-house pharmacists are present at every retail store to attend to customers’ enquiries, give customized advice and tailored recommendations. Half of the procurement team are pharmacists, hence able to identify more efficacious products for sales.
Glove
Revenue is derived from the manufacturing and trading of gloves. Pastel Glove currently has 4 plants with an annual production capacity of 1bn gloves. The plants are currently operating at 84% capacity utilization.
Pastel Glove has shifted its strategy from product mix (20% specialty & 80% latex in 1H22) to only latex gloves on the back of:
- rising demand for natural rubber (NR) gloves.
- improving price and margins.
- shortage of supply as the industry moves away to focus on nitrile healthcare gloves during the pandemic.
- oversupply of nitrile gloves in China.
However, the management team conveyed that they might be focusing back on specialty gloves in 4Q22 which command 10-15% higher margins than latex gloves.
Clients are mainly from China and US. According to Statista, Thailand and Malaysia is the largest and seventh-largest natural-producing rubber countries in 2021. The combined labour and energy are also substantially lower in Malaysia than in Thailand and China according to ASEAN Briefing. The US does not manufacture rubber gloves due to the limited supply of raw materials and overall higher cost.
Several initiatives are in the works to lift sales and margins.
- Certification such as ISO and SMETA is in process, and once attained, the Group can attract higher-tier customers
- Management is looking to secure long-term contracts (6-12mths) to provide visibility.
- Gloniks, Pastel Gloves’ in-house brand, will be launched soon.
Founders of Pastel Gloves, Law Siau Woei and Choo Kuan Ping, have more than 20 years of industry experience. Mr Law created Black Dragon in Medtexx Partners, a high-quality examination glove, which was sold to Microflex in 2010 with a non-compete period of 2 years. Law Siau Woei now holds 18.5% of ENVH.
Source: SAC Capital Research - 13 Oct 2022
