PublicInvest Research says it does not expect Malaysian producers to achieve breakeven levels anytime soon as utilisation rates should remain low (at around 50% or below) due to the weak global demand.
PETALING JAYA: No meaningful turnaround in profitability is expected for the rubber glove sector in the second half of 2023.
Losses for some local players may persist on pricing pressures from competitors in China, muted demand as well as elevated electricity and labour costs.
According to PublicInvest Research, the recent results reported by rubber glove companies under its coverage suggest that the sector is still facing headwinds.
“Kossan Rubber Industries Bhd
and Top Glove Corp Bhd remained in the red while Hartalega Holdings Bhd reported a 96% drop in core net profit after adjusting for one-off impairment losses from the decommissioning of its Bestari Jaya facility,” it said.
The research house noted that all the rubber glove companies under its coverage were still running at low capacity utilisation rates on the prolonged glove oversupply as customers resist any selling price hikes.
“But we believe the move in shaving off production capacity should help to ease the prevailing excess capacity condition in the market.
“Despite this, we are not expecting Malaysian producers to achieve breakeven levels anytime soon as utilisation rates should remain low (at around 50% or below) due to the weak global demand,” it said.
PublicInvest Research noted that customers of these companies were still reluctant to place sizeable orders, as they were now able to receive deliveries in a shorter time period.
“However, we note that the discontinuation of older facilities should lead to lower operating costs, and hence, help ease the pressure of escalating costs in the near term,” it said.
Meanwhile, it said glove makers from China had gained significant global market share over the past two years from 10% in 2020 to 20% in 2022.
This was mainly due to their aggressive price undercutting and capacity expansion plan.
“The producers from China have the cost advantage over their Malaysian peers due to the use of cheaper source of energy (coal versus natural gas) that enable them to price their products at about a 20% discount,” it said.
PublicInvest Research said the current average selling price for Malaysian-made gloves was circa US$20 to US$21 (RM93 to RM98) per one thousand pieces, while gloves from China were being priced at circa US$16 (RM74) per thousand pieces.
It noted that any attempt to raise prices by the Malaysian glove players had resulted in a significant pushback by customers, which have led to lower sales volume as customers divert their orders to producers in China.
“Given our view that global demand should not grow exponentially to mop up the excess installed capacity post-Covid-19 pandemic, we do not foresee Malaysian glove players delivering significant earnings recovery and revert to pre-pandemic profits over the next one or two years,” it said.
The research house has an “underweight” rating on the sector.
