Glovemakers under pressure

Over the recent quarter, the rubber glove industry has weathered the worst, given the sharp deterioration in operational earnings per glove.

KUALA LUMPUR: Shares in rubber glovemakers are under pressure on fresh earnings worries after the Government gave the greenlight for Gas Malaysia Bhd to raise fuel prices next year.

Analysts said gas constitutes about a tenth of glovemakers’ production cost.

Top Glove Corp Bhd fell 6 sen, or 0.9% to RM6.72 at 3.15pm, extending losses for a second day in row. Kossan Rubber Industries declined 12 sen, or 1.5% to RM7.73, while condom maker Karex Bhd was flat at RM1.45.

Hartalega Holdings Bhd was up two sen higher at RM9.52, rebounding from yesterday’s sharp losses. 

“Based on our sensitivity analysis, a hike of 22.4% will impact glove players’ earnings by 7%-10% if it is absorbed fully,” Alliance Research said in a note.

The firm, however, was not “overly concerned” about the gas tariff revision, as it assumes that the glove companies would be able to pass down the higher cost to its buyers.

The natural gas tariff hike was in line with the national rationalisation plan which includes the adjustment of piped gas price every six months, with the implementation of the gas cost pass through (GCPT) mechanism. 

“The final impact of the hike will depend on how soon the glove players are able to pass the increase to their respective customers,” Hong Leong Investment Bank said, which it expects to happen in the first quarter of next year.

Gas Malaysia yesterday announced that natural gas prices will be increased from January to an average base tariff of RM30.90 per MMBtu. Coupled with the GCPT mechanism, a surcharge of RM1.62 per MMBtu will bring the average effective tariff to RM32.52 per MMBtu.

This translates to a 22.4% jump from current tariff of RM26.46 per MMBtu.