HLIB Research said the ringgit’s strength adds to headwinds for the glove sector.
PETALING JAYA: Despite long-term global glove demand growth staying positive, structural supply pressures remain the main concern for the glove sector, driven by Intco Medical Technology Co Ltd or Intco, a Chinese medical consumables manufacturer’s aggressive capacity expansion across China and South-East Asia.
Hong Leong Investment Bank (HLIB) Research said the ringgit’s strength adds to headwinds for the sector.
It poses near-term earnings risks via two channels which are unfavourable revenue translation and compressing margins, as well as more cautious ordering by glove distributors, as reflected by the 29.2% month-on-month decline in Malaysian glove exports in November.
An analyst who tracks the glove sector concurred, stating that a strong ringgit will have an impact on glove exports.
“We need to keep an eye on the ringgit, and may make further adjustments if there is a continuous uptrend in the local unit,” he told StarBiz.
Meanwhile, HLIB Research said sustained share price corrections in 2025 have already factored in the near and long-term challenges, supporting its “neutral” stance on the sector.
“Oversupply risks continue to weigh on investor’s positioning in the sector.”
To recap, Intco announced in October 2019 its plan to develop a production facility with an installed capacity of 8.8 billion pieces per year on circa 30 acres of land in Vietnam’s Thanh Hoa province.
“Based on our channel checks, about five to eight billion pieces per year of this capacity came on-stream as early as August last year.
“Separately, Intco has committed to a long-term investment in the Sei Mangkei Special Economic Zone in North Sumatra, Indonesia, with a total investment value of US$925mil.”
The research house noted the first phase will be executed in stages over five years which began in July 2024, which implies a potential total annual installed capacity of up to circa 30 billion pieces during Phase 1, or about six billion pieces per year.
Based on market intelligence, commissioning of the new lines in Indonesia was completed by the end of last year and in addition, it estimates that Intco will add circa 10 billion pieces yearly from China itself in 2025.
“We believe Intco’s expansion into South-East Asia is primarily intended to serve the US market, while its China-based facilities will continue to supply non-US markets, leveraging a more favourable operating environment.”
UOB Kay Hian in its report said for the first half of financial year 2026, it assessed that the glove sector’s volume sales may see a 5% to 10% quarter-on-quarter growth, lifted by normalised the US replenishment cycle.
This may be largely offset by a weakening ringgit versus US dollar rate (4.05 to 4.10) which resulted in top-line compression.
More importantly, the sector’s profitability and margin will also continue to be suppressed by intense competition in the European market, alongside additional capacity from China’s worsening oversupply dynamics, it added.
The research house also said the sector is now trading at minus 0.25 standard deviation below mean valuation on its 2026 earnings forecasts.
With the permanent disruption caused by the influx of China players’ capacity and their aggressive push to gain market share continuing to weigh on investors’ sentiment, we opine that sector’s valuations will eventually undergo a structural de-rating, it said.
It added that the sector’s risk-reward also appears neutral, with the glove companies under our coverage posing only moderate capital upside opportunities based on 2026’s normalised earnings.
