KUALA LUMPUR, Malaysia (July 2): The best is gone for the Malaysian rubber glove manufacturing sector, according to Maybank Investment Bank Bhd (Maybank IB), as average selling prices (ASPs) peaked in the first half of 2021 (1H21) amid slowing demand for gloves due to increased Covid-19 vaccination rates. The glove sector’s earnings upcycle appears to have been cut short in anticipation of a faster-than-expected decrease in glove ASPs in 2H21, according to Maybank IB analyst Wong Wei Sum in a note today.
“Due to growing supply and rising vaccination rates, the glove industry is entering an era of diminishing ASP (and thus profit). Existing and new entrants are facing increasing competition.
“ESG (environmental, social, and governance) risk adds to the profitability and valuation forecast for glove firms. We’re lowering the sector to ‘neutral’ and changing our valuation approach from DCF (discounted cash flow) to PE (price-earnings). Our top pick is Hartalega (Holdings Bhd) “she stated
Top Glove Corp Bhd, Supermax Corp Bhd, and Kossan Rubber Industries Bhd are among Malaysia’s largest rubber glove manufacturers, in addition to Hartalega.
Wong stated today that both Hartalega and Top Glove had indicated for lower ASPs in the coming months in recent conference calls with analysts.
“Intense rivalry among existing and new companies (particularly the fast increasing China glove producers) could put additional pressure on ASP.”
According to a Frost & Sulivan analysis, ASPs for nitrile/latex gloves are predicted to fall by -59 percent /-52 percent by 2023, to US$35 /US$20.40 per 1,000 gloves, down from US$85/US$42.70 currently “, and so on,” Wong explained.
“We retain our ‘buy’ (call) on Hartalega and ‘hold’ (call) on Top Glove while downgrading Kossan (shares) to ‘hold,'” Wong added.
According to her, Maybank IB reduced its Hartalega share target price (TP) to RM9.80 from RM13.10, while Kossan’s TP was reduced to RM3.20 from RM5.25.
Maybank IB decreased its target price for Top Glove to RM3.98 from RM4.51, she added.
There will be more to come./n
