KUALA LUMPUR: The US Customs and Border Protection’s (CBP) seizure of disposable rubber gloves produced by a Malaysian manufacturer, WRP Asia Pacific Sdn Bhd (WRP), over forced labour allegations will only have a relatively limited impact on the entire sector.
Affin Hwang Capital Research said on Thursday it does not think such an action will have an adverse impact on the entire sector, as the Withhold Release Order (WRO) used by the CBP is for the specific company only (WRP).
“Weak sector sentiment may, however, offer an opportunity to accumulate our top buy ideas for the sector - Kossan and Supermax, ” it said.
The research house pointed out the allegation of forced labour in the Malaysian rubber products sector is not new.
It was first reported by the UK Press in end-2018 and early-2019, whereby they had identified three companies which had engaged in such activities.
WRP was one of the three companies that was identified by the press. Although Top Glove and Karex were also mentioned back then, recent changes implemented by the latter two have managed to address most, if not all, of the concerns.
“The resulting higher labour costs arising from the changes were already reflected in their P&Ls since 1Q19, ” it said.
Commenting on WRP, Affin Hwang Capital Research said the manufacturer had an estimated production capacity of 11 billion pieces a year (around 5% of Malaysia’s overall capacity), with focus on the nitrile and surgical glove segment.
“As the overall impact to the sector is relatively limited, we are maintaining our Neutral call on the sector. Kossan and Supermax are our top buys for the sector, due to their undemanding valuations and higher-than-industry growth rates.
“We have sell calls on Top Glove, Hartalega and Karex due to their rich valuations, ” it said.
We're sorry, this article is unavailable at the moment. If you wish to read this article, kindly contact our Customer Service team at 1-300-88-7827. Thank you for your patience - we're bringing you a new and improved experience soon!