RHB Research said that glovemakers’ earnings growth in 2025 might fail to catch up with the sector’s expensive valuations.
PETALING JAYA: Glovemakers may see volume sales normalise in the first half of the year due to the potential frontloading of orders from US customers, says RHB Research.
This is despite the favourable operating dynamics anticipated for local manufacturers.
Volume sales refer to the sale of large quantities of a product.
The research house, which downgraded the rubber product sector to “neutral”, pointed out that Malaysia’s glove export volumes had declined 11% month-on-month (m-o-m) in November 2024.
In comparison, China’s glove export volumes grew 3% m-o-m.
“While the export volume growth of the two countries appears dissimilar, this could be attributed to a temporary increase in China’s export sales to the US market prior to the deadline of the import tariffs.
“Malaysian glovemakers are set to benefit from trade diversion in the United States and we expect volume sales to taper off in the first half of 2025 due to a potential frontloading of orders from US customers in the fourth quarter of 2024.
“The US October 2024 order volumes surpassed the pre-pandemic two-year average monthly orders by 50%,” it said.
The research house added that glovemakers’ earnings growth in 2025 might fail to catch up with the sector’s expensive valuations.
This indicated that most of the positive news had already been factored in.
In 2024, share prices of glovemakers rallied by about 40% to 50%.
“Putting the numbers into perspective, the current sector forward price-to-book value of 1.9 times is trading at a premium against its two-year historical average of 1.2 times.
“Such a valuation appears hefty compared with the sector’s earnings recovery prospects in 2026, which we estimate at 39% of pre-Covid-19 earnings.”
RHB Research said the rating of the rubber product sector was revised downward also due to persistent limited average selling price-cost spread, which may take time to recover.
In addition, glovemakers’ inability to arbitrage against higher import tariffs led to the downgrade.
With the effect of the US tariffs taking place this year, RHB Research said local glove manufacturers seem to be facing challenges in reaping the full advantage of the import tariffs imposed on China’s manufacturers.
China’s manufacturers sold their products to the United States at US$17 to US$18, and the ideal post-tariff ASP that Malaysian manufacturers should quote to their US customers is US$25.5 to US$27.
