CIMB Securities Research expects that ASPs to continue to rise from current levels in the longer term.
PETALING JAYA: Glove makers, which are expected to face rising labour costs due to increases in minimum wage and foreign workers’ levy, are likely to pass these costs on to customers.
This is because of the more conducive supply-demand dynamics in the glove sector, thanks to strong demand for Malaysian gloves due to the spike in US tariffs on gloves imported from China starting 2025, said CIMB Securities Research.
It highlighted three measures in Budget 2025 that could negatively affect rubber glove companies.
First, the increase in foreign worker levies; second, the RM200 per month rise in minimum wage to RM1,700; and third, the mandatory Employees Provident Fund contribution for foreign workers.
“As a result, we expect Malaysian glove makers to incur higher production costs, as labour cost makes up 9% to 11% of their total production cost.
“We estimate that average production cost will rise by 30 US cents to 40 US cents per 1,000 pieces, which is a 1.7% to 2.4% increase from current levels (estimated to be US$17 to US$18 per 1,000 pieces) and we believe glove makers can raise their average selling prices (ASPs) to pass on the cost increases.”According to the brokerage, the higher US tariffs on gloves imported from China will help maintain demand despite the ASP increases.
To recap, the United States announced an increase in import tariffs by stages on China’s medical and surgical gloves to 50% from Jan 1, 2025, and then to 100% by Jan 1, 2026. This is from 7.5% currently.
“Thanks to the better operating environment, we also note that Malaysian glove makers have been raising ASPs by 5% to 10% since September 2024.
“We estimate that ASPs are currently at US$21 to US$23 (per 1,000 pieces) for orders due for delivery in December 2024 and January 2025,” said the reseach house.
It also expects that ASPs to continue to rise from current levels in the longer term.
This is premised on the view that US-based clients are likely to increase their purchasing volumes from Malaysian glove manufacturers once the higher tariffs take effect in January next year.
“While pricing competition in non-US markets will be heightened, we believe that the situation remains a net positive as the United States is the largest glove importer globally, with a 40% share of global glove volumes. “While China glove makers have opted to diversify its production base outside China (in South-East Asia) to capture US demand, we expect any new capacity from them outside China to be smaller and less cost competitive.”
CIMB Securities Research reiterated its positive outlook on the glove sector, despite its view that the measures announced in Budget 2025 are unfavourable for the industry.
Pending further clarification on these budget measures and company responses, the research house is keeping its earnings forecasts unchanged.
Its stock picks in the sector are Hartalega Holdings Bhd
, with a target price (TP) of RM3.12 per share, and Top Glove Corp Bhd, with a TP of RM1.25 per share.
