KUALA LUMPUR: The glove industry has a long way to go before seeing the light at the end of the tunnel, says Kenanga Research, despite a slight sequential improvement in earnings results in the second quarter of the year.
In 2Q22, 25% of the earnings of glove makers under Kenanga's coverage came in above expectations while 75% came in below, as compared with all disappointments in the previous quarter.
According to the research firm, the recent round of results reported by glove makers suggested that earnings have yet to bottom with average selling prices (ASP) expected to continue declining,
It said low plant utilisation averaging 50-60% is likely to persist over the medium term amid intense competition.
"The situation is further aggravated by the softening demand as evident by the low utilization rate of glove players leading to oversupply putting further pressure on ASP coupled with customers’ reluctance to commit to sizeable orders as they expect selling prices to ease further," it added.
By its estimate, Kenaga said the global glove manufacturing capacity has jumped 22% to 511 billion pieces in 2022 due to the massive capacity expansion by incumbents and the influx of new players during the pandemic.
"As more countries come out the other end of the pandemic, we project the global demand for gloves to ease by 10% in 2022 to 387 billion pieces (partly also due to the destocking activities along the distribution network).
"This will result in an excess supply of 124 billion pieces (assuming, hypothetically, capacity utilisation is maximised)," it said.
In 2023, Kenanga estimates global glove manufacturing capacity will surge another 15% to 595 billion pirces while global demand will resume its organic annual growth of 15%, based on the Malaysian Rubber Glove Manufacturers Association's (Margma) projection.
As a result, excess supply could increase further to 150 billion pieces.
Kenanga estiates that the demand-supply situation will start to approach equilibrium in 2025 when there is no more new capacity coming on-stream and global demand continues to rise.
The research house cut its assumptions on ASP and utilisation for Top Glove (underperform, TP: 65 sen), Kossan Rubber Industries
(underperform, TP:85 sen) and Hartalega (market perform, TP: RM1.68).
Supermax was also rated "underperform" with a target price of 62 sen.
