PETALING JAYA: The operating dynamics of local glove manufacturers remain favourable due to higher demand, supply rationalisation and stabilising average selling prices (ASPs).
Being export-oriented, the sector faced a headwind from the recent weakening of the US dollar.
However, RHB Research expects the flow-through impact from trade diversion – arising from the hike in US import tariff on China from 2025 – to have a net positive effect on the earnings of rubber product companies under its coverage.
“We maintain our ‘overweight’ call on the sector, premised on an improving cost-pass-through model and restocking activities materialising in the second half of 2024 as demand-supply dynamics are expected to achieve equilibrium.
“The hike in US import tariff on China-made products is the icing on the cake as we expect this could escalate trade diversion outside China, eventually benefiting Malaysia manufacturers,” it stated.
It noted that industry-blended ASPs are currently hovering around US$20 to US$21 per 1,000 pieces, improving slightly from US$20 per 1,000 pieces in the second quarter of 2024 (2Q24).
“According to our channel checks, Chinese glove makers’ ASPs now range between US$18 and US$19 per 1,000 pieces, higher from US$17 to US$18 in the previous quarter.
“That said, we understand that local glove makers are in discussions to pass on the effects of a weakening US dollar to customers by at least US$1,” the research firm said, noting this would raise the ASP range to between US$21 and US$22 by 4Q24.
As for demand, RHB Research said Malaysia’s glove export volume surged 66% month-on-month (m-o-m) and 105% year-on-year (y-o-y) in August, outpacing July’s growth.
The export value also rose 15% m-o-m and 51% y-o-y to RM1.6bil.
On the supply side, the brokerage’s channel checks indicate that local manufacturers are running at 70% to 80% capacity.
The research house expects a marginal change in global industry supply of six billion gloves in 2024, on the back of planned capacity replenishment by manufacturers.
By the end of 2024, Hartalega Holdings Bhd
will be able to produce four billion pieces of gloves as a result of the relocation of production lines to its NGC1.5 manufacturing facility.
Top Glove Corp Bhd’s production is projected to hit three billion as it resumes previous capacity that had been temporarily decommissioned.
In Thailand, Sri Trang Gloves Ltd is planning a capacity expansion of 0.3 billion gloves, while Singapore-listed Riverstone Holdings Bhd is undertaking a decommission exercise of 1.3 billion pieces.
In a separate report, RHB Research said Top Glove’s core losses in the fourth quarter ended Aug 31, 2024 (4Q24), will narrow to between RM2mil and RM5mil, versus a 3Q24 core loss of RM53.5mil.
This improvement is attributed to operating efficiency and projected 20% increase in sales volume, plus flattish ASPs offset by a weaker US dollar.
Meanwhile, the research house expects Hartalega and Supermax Corp Bhd to benefit from the trade diversion.
RHB Research maintains its “buy” calls on all three stocks, but lowered its earnings estimate for the financial years 2025 to 2026 following the stronger ringgit.
“Our US dollar/ringgit assumptions for FY25 and FY26 were lowered to 4.01 and 4.00 from 4.65 and 4.60,” said the research house.
It said Top Glove’s valuation remained compelling, trading at minus 0.2 standard deviation (SD) from its two-year historical mean of 1.5 times.
Likewise for Supermax and Hartalega, which are trading at minus 0.4 SD and 0.9 SD, respectively, from their two-year historical means.
