Hong Leong Investment Bank Research upgraded the glove sector from “neutral” to “overweight”.
PETALING JAYA: Although the imposition of higher tariffs on China-made gloves by the United States is positive for local glove manufacturers, the upside is capped by the strengthening of the ringgit, analysts say.
CGS International Research (CGSI Research) said in a report the tariffs were a net positive for Malaysian glove makers as they could potentially regain the substantial loss in market share from China glove players, with potential industry volume upside of up to over 40 billion pieces a year.
“This strong upside could, however, be capped by accelerated inventory dumping by China glove makers into non-US markets, the inability of Malaysian glove makers to ramp up production considerably in the interim, and the strengthening of the ringgit against the US dollar,” the research house said.
Last week, the Office of the US Trade Representative (USTR) announced a modification of the import tariffs on China-made medical and surgical gloves, from 25% by 2026, to a whopping 50% by 2025 and 100% by 2026.
CGSI Research said Hartalega Holdings Bhd
and Kossan Rubber Industries Bhd should see greater volume upside relative to Top Glove Corp Bhd and Supermax Corp Bhd due to their larger revenue exposure to the US market.
“We make no changes to our estimates for the glove companies under our coverage as we think this development further strengthens the certainty of a strong industry net profit recovery in financial years 2025 to 2026, as what we have already imputed.”
The research house also said it was retaining its “underweight” call on the sector as it believes the market may have substantially priced in a very ambitious earnings recovery for Malaysian glove makers.
“Local glove makers’ price-to-book value multiples have inched from one to1.3 times in early 2024 to 1.2 to 1.7 times currently, closer to pre-Covid-19 pandemic averages of three to four times, which seem unjustified to us given the prolonged suppressed return on equity.”
The research house said it had “reduce” calls on Hartalega, Kossan and Top Glove and a “hold” on Supermax.
Sector de-rating catalysts include weaker-than-expected sales volume growth and profitability per 1,000 pieces, while sector upsides were improving cost pass-through dynamics, stronger-than-expected global glove demand spurred by health needs and a prolonged weak ringgit, it added.
Hong Leong Investment Bank Research, however, upgraded the glove sector from “neutral” to “overweight” with maintained “buy” calls on Hartalega and Kossan.
The research house said, with the recent share price weakness and announcement of US tariffs, it believes that the risk-reward ratio has once again become favourable and the glove sector could regain market interest.
It added that while the tariff development would result in a volume and price surge among Malaysian glove makers, it may not have a significant incremental effect to its 2026 forecast.
