Hygiene product demand boosts Israeli non-woven fabric cos

Avgol factory, photo: Eyal Yitzhar

The companies, which had been in the doldrums, have seen their share prices leap since hitting lows March.

After a long period of drift, the coronavirus crisis has generated a positive effect on the business of Israel's non-woven fabrics companies, mainly thanks to growing demand for sterilizing wipes.

This effect has assisted an impressive recovery by the stock prices of the companies in question, with percentage rises that have reached three figures from the low that the prices fell to, although prices remain well below the peaks seen in 2016-2017.

The first quarter results that the non-woven fabric companies have released so far reflect part of the improvement in activity resulting from increasing demand for their products, mainly in hygiene. This improvement is likely to be sustained over the year as a whole.

Albaad Massuot Yitzhak Ltd. (TASE: ALBA) stands out for the improvement in its bottom line. Albaad posted a net profit of NIS 22 million for the first quarter, after cumulative losses of over NIS 100 million in 2018-2019.

Albaad says that the global spread of the coronavirus led to a rise in demand for its products, "as part of the phenomenon of hoarding by consumers and a significant rise in worldwide demand for hygiene and cleanliness products." Albaad's first quarter revenue, more than 90% of which comes from exports, grew by 18% to NIS 429 million, enabling it to improve gross profit and its proportion of sales, which was also thanks to "greater efficiency in the consumption of raw materials."

Spuntech revenue up 21%

NR Spuntech Industries (TASE: SPNTC) saw a 21% rise in revenue in the first quarter, to NIS 172 million. In recent years, the company has mainly been in the news because of frequent changes of management, which did not help its performance.

In the current crisis, Spuntech, which deals mainly in producing raw materials for manufacture of wet wipes, including sterilizing wipes for healthcare institutions, was one of the first companies to report appositive effect from the situation.

In its financial report, Spuntech states that "it identifies growth in demand for its products in all the various categories of wipes, especially in sterilization" - a trend that started in early March. At that time it made its first announcement on the matter, and in line with the rise in demand it recorded "a positive effect on its business activity." The company, controlled by its CEO Yehezkel Nissan, added in its financials released last week that "the growth trend in demand for the company's products continues."

The improvement in Spuntech's sales, which consist almost entirely of exports, is reflected in double-digit improvement in gross and operating profit, helped by a fall in raw materials prices and changes in the mix of products sold. However, the company is exposed to exchange rate fluctuations, and was hit by a substantial rise in finance expenses in the first quarter of this year, after benefitting from exchange rate differentials in the first quarter of 2019, so that its net profit was almost unchanged, at NIS 13 million.

From a low in March, Spuntech's share price has shot up 110%, and is up 80% since the start of the year, giving it a market cap of around NIS 600 million.

Avgol starts making masks and overalls

Avgol Nonwoven Industries Ltd. (TASE:AVGL), the largest of the Israeli non-woven fabric companies in terms of market cap, benefitted from a trend opposite to the one that affected Spuntech in the first quarter in its finance line, with a 90% reduction in its financing expenses, mainly because of the exchange rate fluctuations, so that its bet profit more than doubled to $8 million.

In its regular business, unlike its two main rivals, whose factories continued working without interruption, Avgol was hit by the fact that one of its factories is in China, and was at a standstill for over a month, leading to a 16% decline in quarterly sales, which totaled $91 million, and were also negatively affected by a fall in sales prices.

The main activity of Avgol, which is controlled by Thailand-based Indorama Ventures, is the manufacture of non-woven fabrics as raw materials for products in the hygiene market, such as wipes, disposable medical products, disposable diapers for babies and adults, women's sanitary pads, and so on. Avgol's financials reveal that the company has been acting to adapt to the crisis, and during the first quarter it started to produce fabrics used for dealing with the coronavirus, such as masks and gowns, both in response to a rise in demand from private customers and also in support of the authorities in areas in which the company operates."

Avgol's share price has risen 120% from the low it reached in March, and is up by more than 30% for the year to date, giving the company a market cap of about NIS 1 billion.

Shalag up 85% since March low

Shalag Industries (TASE:SALG), controlled by Kibbutz Shamir, has yet to release its first quarter financials. The company produces non-woven fabrics partly for the wipes and rags market. In its 2019 annual report the company focused on the risks arising from the spread of the coronavirus, among them supply chain difficulties and a halt or reduction in operations in its factories in Israel, Italy and the US, although it stated that at that stage (in March) the virus had had no material effect on its business.

Shalag Industries' share price has jumped 85% from its March low, and has strengthened by about 30% so far this year, giving the company a market cap of about NIS 450 million.

Published by Globes, Israel business news - en.globes.co.il - on June 1, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Avgol factory, photo: Eyal Yitzhar
Avgol factory, photo: Eyal Yitzhar
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