Phillip Capital Research said local glovemakers saw some cost relief as raw material and natural gas prices have eased and are showing signs of stabilising.
PETALING JAYA: Phillip Capital Research has turned neutral on the glove sector, as persistent pricing pressure, particularly from Chinese players aggressively expanding into non-United States markets.
It downgraded its call on the sector to “neutral” from “overweight” as it foresees the volatile demand outlook continues to cloud near-term recovery prospects through 2026.
“We believe global glovemakers may seize the 90-day tariff grace period to capitalise on higher US average selling prices (ASPs),” it added.
While temporary restocking could support near-term demand, the broader landscape remains under pressure from persistent global oversupply and limited pricing power.
“We expect cautious capacity additions and order volumes to stay volatile through financial year 2025 (FY25) to FY26, as structural imbalances in supply and demand continue to weigh on prospects for a sustained recovery,” it explained.
The research house said local glovemakers saw some cost relief as raw material and natural gas prices have eased and are showing signs of stabilising.
However, it pointed out that the extent of decline is unlikely to translate into meaningful margin expansion, given persistent ASP pressure, especially in non-US markets where Chinese players are actively competing on prices. “Our channel checks suggest buyers quickly push for price reduction whenever input costs fall, placing further strain on margins.
“Although Malaysia’s glove ASPs have become more competitive in the United States following the 145% tariff on Chinese gloves, overall pricing remains tight, with ASP/cost spread still narrow at just US$1 to US$2 per 1,000 pieces,” the research house said.
Although the ringgit has remained relatively stable around RM4.44 since the middle of last year, it projected the dollar and the ringgit will end the year at US$1:RM4.30, implying potential downside risk from the current level.
Based on its sensitivity analysis, every 1% appreciation in ringgit could reduce net profits by 18% for Hartalega Holdings Bhd
, 11% for Kossan Rubber Industries Bhd and 5% for Top Glove Corp Bhd.
“That said, most players have cost pass-through mechanisms, allowing for gradual ASP adjustments to help cushion the impact of foreign-exchange fluctuations,” Phillip Capital Research said.
It picked Kossan as its preferred stock in the sector but with a lower 12-month target price (TP) of RM2.24 per share from RM3.15, underpinned by its strong operational efficiency, solid fundamentals and robust net cash position that offers room for potential special dividends.
The research house pointed out that Kossan stands out with the strongest balance sheet among its peers, with a net cash position of RM1.6bil.
This is significantly higher than Hartalega’s RM800mil and Top Glove’s RM200mil.
“Looking ahead, most glovemakers are guiding for subdued capital expenditure in FY25, suggesting that the cash burn cycle seen during the peak of the supply glut is behind us.
“This signals a stronger emphasis on liquidity preservation.
“In terms of net cash as a percentage of market capitalisation, Kossan takes the lead at 33%, followed by Hartalega at 11%, and Top Glove at 7%,” it added.
Phillip Capital Research has maintained its “hold” calls on Hartalega, with a lower 12-month TP of RM2.27 from RM2.80, and Top Glove, with a TP of 83 sen from RM1.44.
“Although earnings for both companies may see near-term improvement, elevated competition and policy uncertainty are expected to constrain volume growth and hinder margin recovery.
“Key risks to our call include higher/lower-than-expected ASPs, pace of demand recovery, and aggressive capacity expansion by Chinese manufacturers,” it said.
