Business

Rise of the PPE industry

The fight against the Coronavirus Disease 2019 (Covid-19) is still far from over even as governments worldwide begin to ease the lockdowns that were put in place to curb its outbreak.

But as the situation starts to return back to normal in certain countries, experts worldwide generally agree that amidst the chaos brought on by the pandemic, the world was not fully prepared to handle an outbreak of that scale.

With this pandemic comes a lesson on how to deal with issues such as shortages in critical medical equipments when a pandemic strikes.

“The pandemic has exposed weak links in our economies, one of them is the global shortage of personal protective equipments (PPEs).

“Of all the inequity and dysfunctions exposed by Covid-19, the disconnect in our healthcare sector has been devastating,” Asian Development Bank Knowledge Management and Sustainable Development vice president Bambang Susantono expressed in his opening statement for ‘Asian Impact: Global Shortage of Personal Protective Equipment Amid Covid-19 – Supply Chains, Bottlenecks, and Policy Implications’ webinar held recently.

As Covid-19 continues to affect the global economy and countries starting to adapt to the new normal, demand for protective gears as well as healthcare products will continue to be on the rise.

The World Health Organisation (WHO) estimated that 89 million medical masks are required for the Covid-19 response each month, along with 76 million examination gloves and 1.6 million medical goggles.

To meet rising global demand, WHO estimated that industries must increase manufacturing by 40 per cent and urged governments to act quickly to boost supply.

At the start of the pandemic, it was clear to see that there had been a huge shortage in medical equipments and PPEs used to combat and protect frontliners against Covid-19.

This shortage was partly driven by panic buying, hoarding, and misuse of PPEs amidst the pandemic.

“The dramatic rise in demand for surgical masks, goggles, gloves, and gowns has depleted stockpiles, prompted significant price increases, and led to production backlogs of four to six months in fulfilling orders.

“The most significant challenge is to ensure that critical PPE products are sourced and allocated to frontline health workers and other responders in affected countries, especially those most vulnerable to the spread of the coronavirus,” ADB had highlighted in its April 2020 ADB Briefs report.

Nevertheless, ADB had pointed out with that, aware of this huge demand, companies region-wide are making changes to their production line to produce protective gears, especially PPEs.

“Extraordinary measures have been taken to ramp up production capacity by reorienting the manufacturers of non-medical device for PPE production,” it said.

“We noted the increase in demand for PPE across the globe and we have spoken with manufacturers to ramp up production.

“WHO will also allocate enough protective gears for low and middle-income countries facing difficulties in obtaining the supplies,” said WHO strategic development and public-private partnerships senior consultant Michael Griffin.

For Malaysia, it is facing similar need for PPEs with demand increasing greatly.

According to Malaysia’s Health director-general Datuk Dr Noor Hisham Abdullah, the number of PPE used by healthcare workers under the Health Ministry (MOH) amounts to 59 million units monthly.

“There are 18 items of PPE, so we are monitoring closely to ensure stocks are continuously being procured and delivered to MOH,” he said at a daily briefing on Covid-19 in April.

However, border closures and trade restrictions have caused longer lead time for the production and distribution of PPEs globally.

With these challenges, Malaysia’s government has turned to its own industries to increase its supply of PPEs in the short-term. Companies in Malaysia have also stepped up to the plate to fill in the gap brought on by disruptions in the supply chain for PPEs.

BizHive Weekly takes a look at established companies in the PPE industry and those looking to support its supply.

Rubber gloves: Ramping up production to meet demand

Malaysia is one of the world’s top rubber glove producer, with Bursa Malaysia-listed Top Glove Corporation Bhd (Top Glove) being the world’s largest maker of medical gloves.

The Malaysian Rubber Glove Manufacturers Association (Margma) estimated global demand for rubber gloves to be at aroundv 330 billion units.

Margma also said it expected to export 225 billion units worth some RM20 billion this year, up from 170 billion units valued at RM17.3 billion last year, and about 65 per cent of the total world requirement.

AmInvestment Bank Bhd’s research team (AmInvestment) noted that Malaysian glovemakers expected glove demand to increase by roughly 30 to 50 per cent. This is a sharp contrast to eight to 10 per cent pre-Covid-19.

However, it pointed out that the higher demand has resulted in a shortage of supply, pushing up average selling prices for these medical gloves.

“Average selling prices (ASPs) are trending upwards and glovemakers now guide for around five to 15 per cent quarter-on-quater (q-o-q) gradual increases while spot selling prices for gloves skyrocketed 100 to 400 per cent in the past few months as panic buying of gloves ensues,” it said.

“We believe selling prices will continue to grow in 2021 as a vaccine for Covid-19 is expected to take roughly 12 to 18 months to create,” it added.

Source: Company data, Maybank Kim Eng

Meanwhile, Maybank Investment Bank Bhd’s research team (Maybank IB Research) pointed out that the market shares of the five major rubber gloves players in Malaysia have grown over the years and it estimated that their combined global market share is 60 per cent today.

“Given the nature of the manufacturing business, economies of scale play a big part in reducing the unit cost and the smaller players have exit the market over the years.

“With a more consolidated market and the tight supply outlook into 1H21, we believe the glove players also have better pricing power today,” it opined.

For players that has more flexibility in raising ASPs (such as Top Glove), it pointed out that the confirmed ASPs for July 2020 is already more than 40 per cent higher than pre-Covid-19 level in February 2020.

As for players that have bigger exposure to the big distributors (such as Hartalega, Kossan), Maybank IB Research believed the current blended ASP could also be more than 10 per cent higher than pre-Covid-19 level.

“This is because the big distributors only account for 30 to 50 per cent of the sales volume, leaving the remaining 50 to 70 per cent of volume available for faster upward ASP adjustments. Comparatively, none of Top Glove’s customer accounts for more than four per cent of its sales,” it said.

As for Supermax (a unique manufacturer-OBM player), the ASP hike is much steeper than the abovementioned OEM players.

Source: MARGMA, Maybank KE

In addition to enjoying the ASP hikes at its manufacturing division, Maybank IB Research noted that Supermax also streamlined its supply chain (eliminating all the middlemen), in order to maximise its profit.

Supermax has guided that its ASPs (including distribution) has more than doubled to US$150 per thousand pieces (from US$60 per thousand pieces before Covid-19).

Beyond Covid-19 pandemic, AmInvestment anticipate a structural change in the way gloves are used, forming a new normal where glove usage per capita will increase as hygiene measures become stricter.

“This is expected to apply not only in the healthcare sector but also across different industries like F&B. The glove consumption per capita in emerging markets such as India and China was low at around two to six gloves as opposed to circa 100 to 280 gloves for developed countries,” it predicted.

Oxford Business Group (OBG) in a report, believed that investments in automation and digitalisation should help Malaysian medical glove manufacturers cement their position at the forefront of the global industry, which looks likely to see elevated long-term growth as a result of government stockpiling and heightened awareness around personal hygiene. It also noted that the prospects for the industry in Malaysia are underpinned by the country’s 1.7 million hectares of rubber plantations, which produce almost 20 per cent of the world’s natural rubber supply.

Tech companies lend a hand

From producing semiconductors to developing important components for medical test kits and PPE-producing machines, and aiding companies in distributing PPEs, the tech sector in Malaysia is also stepping up the their role in the fight against Covid-19.

ACO Group Bhd (ACO Group), via its wholly-owned subsidiary, Actgen Industry Sdn Bhd, has entered into a business collaboration agreement with health technology solutions provider, Prima Nexus Sdn Bhd (Prima Nexus) to distribute, amongst others, rapid test kits for the detection of Covid-19 which have been approved by the Ministry of Health Malaysia.

ACO Group, which is a distributor of electrical products and accessories for industrial, commercial and residential use, said under the business collaboration agreement, ACO Group and Prima Nexus will work together to distribute the MOH-approved Covid-19 Antibody Rapid Test Kit within Malaysia.

Prima Nexus is a regional management consulting firm providing bioscience and health technology solutions for the medical areas of research, clinical, therapeutic and diagnostic.

Meanwhile, Notion VTec Bhd (NVB), a Bursa Malaysia-listed company which manufactures and sells precision components, tools, and other related products, announced recently that it is looking to venture into the healthcare industry.

NVB has decided to venture into the production including sales and marketing of PPE as well as involve in the production of components related to the medical ventilators in addition to the company’s core business of supply high quality and precision-machined component.

It said, the production of the PPE will be in accordance with the International Organisation for Standardisation and the company is in the midst of applying the approval from all the relevant authorities for the production of the PPE.

National carmaker Proton joins the fight

Aside from established PPE-producing companies, amidst the government’s call for more corporations to lend a hand in this fight against Covid-19, national carmaker Proton has taken a step in the PPE industry by shifting their production during the Movement Control Order (MCO) to produce much-needed medical equipments such as face shields.

In a statement, it said, production of the face shields began on April 13 at Proton’s headquarters in Shah Alam with assembly to be undertaken by staff members who volunteered their services.

The target is to produce 60,000 face shields and the total production time is estimated to be approximately 20 days.

“As a national automotive brand, Proton is driven by its responsibility to develop the local car industry and to support Malaysia and its people in their time of need.

“We have the know-how to produce cars so we are using that knowledge to produce PPE equipment to support the brave men and women at the frontline of the battle against the spread of Covid-19.

“The face shields will be delivered in batches and we will work closely with the Ministry to distribute them according to the level of need in each district,” said Proton deputy chief executive officer Datuk Radzaif Mohamed.

Aside from that, with its partnership with Geely Holding Group via DRB-Hicom Bhd (DRB-Hicom), Malaysia received a donation consisting of disposable three-ply surgical masks, protective medical clothing, medical goggles and PL 700 ADV ventilators.

These items were distributed to 55 hospitals located throughout the country that have been earmarked by the Ministry of Health.

Property companies stepping out of the gloom to help consumers

The property sector was also one of many industries heavily impacted by the Covid-19 outbreak.

As non-essential businesses and services were not allowed to operate during the MCO period, property projects and marketing activities for launched projects have to be temporarily put on hold, disrupting income streams for most property development companies.

Nevertheless, some companies have taken the initiative to look at a silver lining amidst this pandemic.

Iconic Worldwide Bhd (Iconic Worldwide), a Bursa Malaysia listed company that is primarily involved in tourism and property development, had announced that it is venturing into face mask manufacturing, initially targeting factory and construction companies in Malaysia.

In a statement, the company said that its new business venture will be placed under its fully-owned subsidiary Iconic Medicare Sdn Bhd. Currently, the manufacturing facility located at Juru, Penang, is capable of producing face masks at a rate of 100 pieces per minute, amounting to approximately two to three million face masks a month. There are plans to increase production to five million face masks a month by the third quarter of 2020, as orders have already been fully taken up until July.

Iconic Worldwide managing director Datuk Tan Kean Tet said, “We saw a need to locally produce face masks as a large part of Malaysia’s supply is still from China.

“As Recovery Movement Control Order (RCMO) is implemented, we foresee people will be more willing to leave their homes. Consumption of face masks is expected to increase, and we are confident of matching the demand with a reliable supply. Furthermore, producing it locally can give our customers assurance on the origins of the product and the high quality materials that go into making our face masks.”

Iconic Worldwide is currently getting ISO and CE endorsements to export its medical grade masks. For now, its face mask manufacturing venture is limited to the northern region of Malaysia.

Textile industries go from dresses to medical gowns

The textile and fashion industry was one of few industries that were called out by the government to aid the production of PPEs particularly the much-needed medical gowns and surgical masks.

The Malaysian Plastics Manufacturers Association (MPMA) and the Federation of Malaysian Fashion, Textile and Apparel (FMFTA) have stepped up to fill a critical gap in the supply chain for key PPEs in Malaysia.

MPMA has been working with its members to repurpose their machines to overcome a global shortage of non-woven material which is needed to make the much needed PPEs, while working with members of FMFTA in the production process to sew the jumpsuits, isolation gowns, head covers, and boot covers.

Several textile companies have also made the change in their income stream including Bursa Malaysia-listed Caely Holdings Bhd (Caely), an investment holding company primarily involved in the business of manufacturing, retail, export and direct sales of undergarments, household products, and property development and construction.

It had recently ventured into face masks and PPE production, targeting Germany, US, Australia, Saudi Arabia and India markets.

To solidify its new business venture, Caely’s 100-per cent owned subsidiary, Marywah Industries (M) Sdn Bhd (Marywah) had signed a Product Manufacturing Agreement with Ni Hsin Marketing Sdn Bhd (NHM), a wholly owned subsidiary of Ni Hsin Resources Bhd, for the appointment of Marywah as the Original Equipment Manufacturer (OEM) of NHM’s brand name products which mainly consists of fabric face masks (under the brand name of Masketeer – Coolmax Fibre Protective Mask) and PPE. The agreement is valid until December 31, 2022.

According to Caely, aside from face masks, the company is also currently manufacturing protective suits.

On the business opportunities for Caely’s face masks and PPE, Caely executive chairperson Datin Fong Nyok Yoon commented: “We have been receiving orders from five companies, four of which are local and one from overseas since March 2020.

“The sole overseas order came from Germany, and we are working on further inquiries from US, Australia, Saudi Arabia and India. We foresee there will be more inquiries in the future, as social habits are changing and wearing face masks are becoming a norm in our lives.”

Of note, Caely is one of the largest manufacturers and exporters of lingerie in Malaysia.

Future of healthcare sector in the face of another pandemic

As the world adjusts to the new normal of being extra vigilant in curbing the spread of Covid-19, the pandemic has shed new light on the importance of keeping the healthcare sector prepared for the possibility of another pandemic.

On that note, ADB had stressed that there needs to be policies in place to limit the disruptions in supply chains across the world.

“Recent epidemics and pandemics, including the 2009 H1N1 influenza pandemic and the 2014 Ebola virus epidemic, provide important lessons in improving readiness of PPE supply.

“Transparent and comprehensive information about availability of products on the market, production capacity, and supply response is critical for PPE readiness during these outbreaks, epidemics, and even more so for pandemics. Ensuring guidance on appropriate use of PPE (through proper care, maintenance, and disposal) also proved to be helpful to avoid wastage.

“The absence of a systemwide mechanism to track the amount of PPE circulating in markets and in use and to centrally monitor the orders to support future preparedness was a key challenge,” it highlighted in its April 2020 ADB Briefs.

“We should have a better system to monitor PPE use and distribution as well as some centralisation or visibility of orders placed.

The healthcare supply chain in many countries are designed for efficiency but we need an efficient but low-burdened mechanism for governments, private sectors to share supply-demand information,” ADB Economic Research and Regional Cooperation Department, Regional Cooperation and Integration economist Kijin Kim shared during ADB’s recent webinar.

After the crisis is over, ADB noted that countries might want to consider maintaining adequate PPE stocks and enough surge capacity to be able to ramp up national production.

“For now, it is important for countries to work together to improve resource allocation and production capacity within and across borders.

“Given the interdependence along the supply chain network, countries should lift export bans and trade restrictions on key materials and PPE and streamline the cross-border logistics of these types of freight. As countries will likely face different infection curves at any given time, efficient resource allocation at a global scale will help support the national health security of individual countries while minimising strains on limited domestic resources,” it said.

 

 

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