PETALING JAYA: The earnings recovery momentum of the local rubber glove sector may be halted as the sales volumes and average selling prices (ASPs) trended down in January and February.
According to Affin Hwang Investment Bank Research, the recovery of glove manufacturers may have taken a breather following the dip in sales and ASPs.
The research house, which had briefings with Top Glove Corp Bhd
and Hartalega Holdings Bhd recently, said competition from Chinese manufacturers have further amplified in the non-US markets, with some products being sold as low as US$15 per 1,000 pieces, which is close to the post-pandemic lows.
“Due to their inability to export to the United States following the imposition of the tariffs, Chinese manufacturers have started cutting prices in other markets to garner market share.
“Furthermore, it is estimated that the Chinese manufacturers have a cost advantage of US$3 to US$4 per 1,000 pieces due to their more efficient plants and reliance on coal as a fuel source, compared to Malaysian manufacturers relying on natural gas,” Affin Hwang Research said.
It added that there are risks of further competition from China, as it explores expanding production capacity into surrounding countries in South-East Asia such as Indonesia, Thailand, and Cambodia.
“While the cost structure of its plants outside of China may not be as competitive as those within the country, we do not discount the possibility of Chinese manufacturers operating a high-volume, low-margin business model.
“This is likely to negatively impact the prospects of Malaysian manufacturers,” the research house said.
The local glove industry had hoped that the pricing power of Malaysian manufacturers would remain strong in 2025 after the imposition of US tariffs on China-made gloves and improved sales volumes from the United States.
Instead, Affin Hwang Research pointed out that the opposite has materialised, and sector sentiment has since shifted, leading to share price declines of 25% to 27% since mid-February.
“The near-term outlook for the sector remains uncertain, as we gather that ASPs are expected to see further declines in March and April, with glove manufacturers attempting to defend and gain market share,” it added.
The research house has maintained its “neutral” stance on the sector given the lack of near-term rerating catalysts.
“Despite the weak outlook in the first half of this year, we believe the sharp share price retracement over the past month has priced in the weak near-term outlook. We remain selective and prefer exposure to companies with robust fundamentals and a strong net cash pile to navigate the industry challenges,” it added.
Affin Hwang Research has a “buy” call on Kossan Rubber Industries Bhd with a lower 12-month target price (TP) of RM2.35 from RM2.65.
It has “hold” ratings on Hartalega with a lower 12-month TP of RM2 from RM2.70, and Top Glove with a TP of 93 sen.
