The research house maintained its neutral call on the glove sector with expectations that there will be a short-term oversupply in the industry.
In addition, there will be an influx of latex glove supply from Thailand's Sri Trang as it plans to increase its capacity to 30 billion pieces by end-2020 from 22 billion pieces at end-September 2019.
"2020 will see an enlarged supply of gloves by circa 17.6%, although the expansion is at a gradual pace.
"As this exceeds the organic demand growth expectation of 8–10%, we believe the average selling price (ASP) will continue to be weighed down," it added.
The research house also expects operating margins to remain under pressure next year as Hartalega, Top Glove and Kossan will continue to be hit by intense competition, higher labour costs, mixed raw material prices and a higher gas tariff.
It forecasts an average of RM4.12 for its USD/RM exchange rate in 2020, with a stronger ringgit adding downward pressure on the glove producers' margins.
AmInvestment's top pick for the sector is Kossan with a buy call and fair value of RM4.65.
It also maintained its buy call for Top Glove with a fair value of RM5.12, and has a hold call on Hartalega with a fair value of RM4.87.
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