Waste management firm Enviro-Hub Holdings has once again caught the attention of SAC Capital in an unrated report dated Oct 13. This report comes after analyst Yeo Peng Joon’s site visit on Oct 5-7 to the group’s glove manufacturing and retail pharmacy business.
SAC Capital had previously issued a non-rated report on Enviro-Hub on Sept 8, with analyst Peggy Mak liking its increasing e-waste recycling business and its new ventures into the healthcare industry.
In Yeo’s report, he too likes the group’s diversification efforts.
The two businesses that Enviro-Hub has diversified into are Pastel Glove and R Pharmacy, both of which are under its new healthcare segment. Enviro-Hub has a 100% stake in Pastel Glove, which has a 40% stake in Pastel Care and the remaining stake of Pastel Glove held by Law Siau Woei. Pastel Care opened their first retail pharmacy, R Pharmacy, on April 16 in Klang, Malaysia.
Law Siau Woei and Choo Kuan Ping, founders of Pastel Glove, have over 20 years of industry experience. 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 two years.
Law presently holds 18.5% of Enviro-Hub.
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Yeo notes that R Pharmacy aims to grow the number of stores in Malaysia’s heartlands to 25 and 90 by April 2023 and FY2024 ending December 2024 respectively, from the seven stores that are operating at present. During his site visit, Yeo also visited R Pharmacy’s outlet in Kuala Lumpur.
“Management is scaling up their distribution centre to extract higher economies of scale as more stores start to operate,” writes Yeo. “Half of the procurement team are pharmacists, hence able to identify more efficacious products, thereby lifting sales.”
According to Yeo, one more R Pharmacy store is set to open in November and seven more in January 2023. At the same time, management is currently building up their distribution centre to lower delivery costs from the economies of scale as more stores start to operate.
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Yeo observes that in-house pharmacists are present at retail stores to attend to customers’ enquiries, give customised advice and tailored recommendations. “Half of the procurement team are pharmacists, hence able to identify more efficacious products for sales,” he adds.
Meanwhile, the analyst visited the Pastel Glove site in Ipoh, Perak. Overall, the group currently has four Pastel Glove plants with an annual production capacity of 1 billion gloves, with plants currently operating at 84% capacity utilisation.
Enviro-Hub acquired 25% in Pastel Glove in February 2021, and the rest of the company in October 2021.
Pastel Glove has shifted its strategy from product mix of 20% specialty and 80% latex in 1HFY2022 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 Covid-19 pandemic and an oversupply of nitrile gloves in China.
However, Yeo shares that the management team conveyed that they might be focusing back on specialty gloves in 4QFY2022 which command 10%-15% higher margins than latex gloves.
Several initiatives are in the works to lift sales and margins which include the certification such as International Organisation for Standardisation (ISO) and Sedex Members Ethical Trade Audit (SMETA), in a bid to attract higher-tier customers once attained.
In addition, management is looking to secure long-term contracts of six to 12 months to provide visibility. At the same time, Yeo notes that Gloniks, Pastel Gloves’ in-house brand, will be launched soon.
Yeo is also aware that the healthcare business segments contributed to 14% or $3.3 million of Enviro-Hub’s total revenue in 1HFY2022, although there was a notable operating loss of $200,000 as well.
As at 3.43pm, shares in Enviro-Hub are trading flat at 5.1 cents at a FY2022 P/B ratio of 1.0x.
