UOBKH Research said Top Glove has sufficient capacity to handle a steep order book increase.
PETALING JAYA: A shift in US demand for nitrile gloves to Malaysian producers from Chinese producers together with a host of positive factors including improving outlook on profitability, supports the case for 2025 being the year of delivery among glovemakers such as Top Glove Corp Bhd
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UOB Kay Hian (UOBKH) Research, which recently met with Top Glove’s management, said the tariffs being imposed on Chinese gloves may lead to US distributors shifting their purchase to Malaysian glovemakers such as Top Glove.
From February 2025, Chinese medical gloves face 60% tariffs from 50% and 110% tariffs in 2026 from 100%.
“Such tailwinds allowed Top Glove to raise the average selling price (ASP) for its US nitrile gloves export by about US$1 per thousand pieces since Nov 24, and eventually towards the pre-pandemic level of US$23 per thousand pieces in 2025,” it said. Top Glove’s nitrile glove ASP stands at US$20 currently.
Annual US glove consumption has been projected at 70 billion to 75 billion pieces in 2023 to 2024, with China’s market share at 50%.
China’s estimated nitrile glove ASP stands at US$16 to US$17 per thousand pieces.
The shift in US supply sources have enabled Malaysian and Thai glovemakers, who mainly produce rubber medical gloves, to seize market share.
The shifting market dynamics have also seen Chinese glovemakers dump their excess supply in Europe, where Top Glove’s sales have declined 3% to 5% but this has been largely offset by a 5% month-on-month rise in January 2025 in US sales.
“Moving forward, we foresee Top Glove’s US sales mix increasing to 25% to 30% of total sales in 2025 (first quarter ended Nov 30, 2024 (1Q25: 18%), with the Europe region’s sales mix easing off towards 35% to 40% (1Q25: 47%).
“Overall, Top Glove’s sales growth will still be net positive from this shifting market dynamics,” it said.
The research house, which has maintained a “hold” call on the stock with a target price of RM1.22, anticipates sequential growth in 2Q25 with sales growth of 5%.
“Our forecasts assume Top Glove’s quarterly sales volume growing to around 10.7 billion pieces (1Q25: 10.2 billion pieces), mainly driven by higher purchase from US customers as higher tariffs against China manufacturers are implemented,” it said.
Glovemakers would also receive a boost from investor sentiment due to rising cases of influenza and while there may not be a severe outbreak, there could be increased trading interest in Malaysian glovemakers and on Top Glove in view of distributors stocking up on inventories in the near-term to manage the risk of a sudden surge in gloves demand.
UOBKH Research said Top Glove has sufficient capacity to handle a steep order book increase, as the company’s current active capacity stood at 64 billion pieces annually after restarting production lines in three to four factories that had been scaled back previously.
It believes that while the company aims to lift active capacity to 70 billion pieces by financial year ending Aug 31, 2025, there could still be a slowdown in January-to-March because of sufficient current capacity and therefore, refurbishment costs could be lower in 2Q25 on installation of fewer production lines.
Top Glove closed unchanged at RM1.22 a share on Feb 10 from the Feb 7 closing price.
