PETALING JAYA: Top Glove Corp Bhd
is optimistic of a strong sequential rebound in earnings recovery for the second quarter of financial year 2025 (2Q25), says Kenanga Research.
Following a recent meeting with the brokerage firm, Top Glove said the recovery will be due to the absence of high-priced inventory, a slight increase in average selling price (ASP) and favourable foreign exchange.
However, the group expects flattish volume sales in January and February 2025 due to the frontloading effects of the US customers purchasing from Chinese glove makers before the 50% tariff imposition effective this month compared with a 8%-10% month-on-month (m-o-m) growth in November and December 2024.
"Thereafter, Top Glove expects order shipments from the US customers to accelerate from end-February 2025," Kenanga Research said in a report yesterday.
Other key takeaways from the meeting include a more pronounced effect of rising ASP will only be felt after February 2025 due to the frontloading effects of US customers purchasing from Chinese glove makers.
The brokerage firm said "We conservatively assume an ASP of US$20 per 1,000 pieces in our earnings model."
Top Glove, meanwhile, is optimistic that ASPs are expected to inch up gradually by 3% each month from November 2024 onwards.
However, due to the lag effect, ASP increases will only be felt gradually starting from December 2024. Typically, ASP for the US market is higher by US$1 per 1,000 pieces compared to the rest of the world.
Kenanga Research noted Top Glove has highlighted that its exports to the US are continuing to show improvement, which rose 21% quarter-on-quarter in 1Q25.
The US sales accounted for 18% of total group volume sales, above the 15% mix for the financial year 2024 (FY24), but still below the pre-pandemic average of 20%-30%.
At the same time, Top Glove is optimistic that the strong growth momentum will sustain, as customers continue replenishing their depleting glove stockpiles.
"The group continues to see m-o-m uptrend in sales volume in December 2024 and expects orders from the US to pick up in subsequent quarters, underpinned by inventory rebuilding by distributors and boosted by the US recent tariff imposition on Chinese gloves," said the brokerage firm.
Presently, the group's utilisation rate is 66% compared with 60% in 4Q24 and 45% in 3Q24.
In terms of valuations, Kenanga Research has kept its FY25 and FY26 forecasts unchanged with a "market perform" call on the stock at a target price of RM1.30.
Kenanga Research said it expects the oversupply situation to be less acute and gradually improve following signs of players culling production capacity via decommissioning of selective plants and exit of new entrants.
"Based on our estimates, the demand-supply situation will only start to head towards equilibrium in 2026, when there is virtually no more net new capacity coming onstream while the global demand for gloves continues to rise by 15% per annum underpinned by rising hygiene awareness," it added.
The Malaysian Rubber Glove Manufacturers Association (Margma) projects 12%−15% growth in the global demand for rubber gloves annually from 2025, following an estimated 20% increase to 368 billion pieces in 2024.
"We project the demand for gloves to rise by 12% in 2025 to 368 billion pieces and resume its organic growth of 9% thereafter. This will result in an excess capacity of 109b," said Kenanga Research.
It noted that overcapacity will continue to subside moving into 2026 with the fall in excess capacity by 35% to 72 billion pieces from 264 billion pieces in 2023 is a key thesis to change to the fundamental improvement in supply-demand dynamics.
