KUALA LUMPUR (April 6): Hong Leong Investment Bank (HLIB) Research has maintained its “overweight” stance on the rubber glove sector amid resurging global Covid-19 cases, which are expected to provide short-term support for demand.
The research house in a note today said this was despite recent price corrections and the ongoing labour freeze, adding that its top picks are Top Glove Corp Bhd (“buy”; target price [TP]: RM7), Hartalega Holdings Bhd (“buy”; TP: RM15.80) and Kossan Rubber Industries Bhd (“buy”; TP: RM5.22).
In a meeting with HLIB analyst Gan Huan Wen, Malaysian Rubber Glove Manufacturers Association (MARGMA) president Dr Supramanaim Shanmugam said the estimated supply of disposable gloves is set to increase by 22% to 420 billion pieces per annum in 2021, of which new Malaysian entrants will contribute 6.5 billion to 10 billion pieces, with numbers collated from the ASEAN Rubber Glove Manufacturers Association, new and existing rubber glove players locally, as well as the tracking of capacity expansion from other countries.
However, Supramaniam pointed out that while new Malaysian glove makers are expected to start production from May, it will take a month or two for the producers to obtain relevant certification for various export markets and they may only begin applications after production commences.
“MARGMA remains sceptical about the mooted 85 billion to 100 billion increase in production capacity from China by 2023. Furthermore, MARGMA reckons that even if the rapid capacity expansion in China materialises, the increased supply will likely be mopped up by the domestic China market from heightened hygiene awareness from the Covid-19 outbreak,” said Gan, who noted that China’s pre-pandemic (2019) annual glove use per capita of six far lagged behind its developed market peers of 150/100 pieces in the US/EU per capita,” wrote Gan.
Moreover, the local body expects the supply shortage to last until the second quarter of next year.
While average selling prices (ASPs) will decline before that, they will still be around 40% to 60% higher than pre-pandemic levels, owing to increased hygiene awareness worldwide that would drive glove demand upwards.
Meanwhile, Gan noted that intake of foreign workers is still currently curbed due to the ongoing Covid-19 pandemic.
The manufacturing association estimated that the industry requires an additional 25,000 workers on top of the estimated 71,800 employed in order to meet current demand.
“Contrary to popular belief, MARGMA shared that the glove industry is a highly automated industry. Note that in the most advanced factories, it requires just 1.7 workers to produce one million gloves per month (down from 9.7 in 2008)
In 2020, the lack of labour resulted in an export loss of an estimated RM8.5 billion.
