PETALING JAYA: Analysts remain neutral on the gloves sector outlook, despite the US official imposition of an additional 10% tariff on China's goods, including rubber gloves.
On Jan 2, the US president Donald Trump signed executive orders to impose the additional tariff on Chinese goods, effective on Feb 4. The “counter measure” was made as a move to combat fentanyl, and the tariffs are said to remain in place until the crisis is resolved.
The US administration, under the former president Joe Biden, had already announced tariff rates on medical and surgical rubber gloves of all kinds. This was an increase from the previous 7.5% to 50% and further to 100%, effective Jan 1, 2025 and Jan 2026 respectively.
Hong Leong Investment Bank (HLIB) Research in a report said it viewed the additional tariff to have limited impact on the sector.
“We believe the additional 10% tariff on China’s medical and surgical rubber gloves would not necessarily create another round of higher-than-expected tariff-led average selling prices (ASPs) surge for Malaysian glove makers, as seen in the fourth quarter of 2024 (4Q24)” the research house added.
It noted this is considering that the US glove distributors have re-established their supply chains in Malaysia.
"This was unlike the time when US glove distributors rushed to re-establish the supply chain in Malaysia in mid-September 2024 to 4Q24, which allowed local glove makers to strengthen their bargaining power," HLIB Research pointed out.
As for mid to long-term, HLIB Research is of the view that the tariffs would not necessarily help Malaysian players to capture the global market share from Chinese players.
Instead, the research house believes that Chinese players will shift their focus to Europe and Asia from the US market, which is a mere shift in customer profile between Malaysian and Chinese players.
“However, when trade is diverted to Malaysia, we believe US medical rubber glove distributors are likely to prioritise reputable companies and established business relationships. Hence, we see Hartalega Holdings Bhd
and Kossan Rubber Industries Bhd as clear beneficiaries, given their listing status and having relatively higher exposure to US customers,” it added.
It noted the bonus points for Hartalega and Kossan are due to its records of not having been served with the Withhold Release Order (WRO) by US Customs and Border Protection (CBP).
HLIB Research also noted it has factored-in these expectations into the earnings forecasts of Hartalega and Kossan.
The research house, which maintained a "neutral" call on the gloves sector, said “while we remain optimistic about the gradual improvement in operating conditions for glove manufacturers, we believe that the recovery thesis for 2025 has already largely been priced in”.
It has also set a “buy” rating on Kossan, primarily due to its ongoing price earnings re-rating play.
