The group is valued at RM3 billion at today's closing price.
Mah Sing's share price exceeded the consensus target price of RM1.
Investment analysts who track the stock anticipate rubber glove production to contribute RM100 million to RM230 million in net earnings a year. Mah Sing's valuation has been lifted as analysts are valuing the group based on the existing rubber glove makers' premium valuations.
AmInvestment Bank, which has the highest target price (TP) of RM1.50, anticipates Mah Sing's glove division to provide additional net profits of RM51 milion and RM105 million for the financial year ending Dec 31, 2021 (FY21) and FY22 respectively.
AmInvestment raises its TP to RM1.50 from 72 sen to reflect the contribution from the company's glove manufacturing business in FY21.
"We value the glove business at 25 times over FY21 earnings, which is a discount over the glove sector's [price-earnings ratio] of 35 times. We believe the discount is justified as Mah Sing has no prior experience in glove manufacturing business," its analyst Thong Pak Leng wrote in a research note dated Oct 16.
Maybank IB Research, however, commented that while it applauds Mah Sing's plan to diversify into glove manufacturing for added income streams backed by its more than 40 years of experience in the plastic industry, the research outfit is cautious about the "increasingly crowded healthcare space and the sustainability of gloves' demand and pricing post-Covid vaccines".
Maybank IB Research, which pegs its TP at 73 sen, estimated the new business to contribute RM60 million in FY21 and RM366 million in FY22. But, it said it maintains the earnings forecasts for now. "Execution is the key factor for this new business venture," said the research unit.
To recap, Mah Sing expects to have its first six glove production lines ready by the second quarter next year (2Q21), while the remaining six are expected to be operational by 3Q21. The investment cost is RM150 million for Phase 1.
Phase 2 of its expansion plan can accommodate an additional 12 production lines and double its annual capacity to 7.35 billion pieces. Phase 2 will be executed when demand outstrips supply for Phase 1.