KUALA LUMPUR: The rubber glove sector could be supported by potential growing export prospects moving forward although it is presently operating within a constrained space.
Any upside in exports which is being priced in could come from gains from the trade war between the United States and China, which may benefit Malaysian players in this space.
The United States had last month announced an increase in the import tariffs on China-made rubber gloves to 25% by 2026. But some analysts and the Malaysian Rubber Glove Manufacturers Association are cautious on any gains when the time comes, as they expect the United States to also source rubber gloves from its domestic producers.
The immediate outlook appears to still be challenging for domestic rubber glove players, according to Rakuten Trade’s head of equity sales Vincent Lau.
However, he said the worst was likely over, which is a key factor to consider when looking into the sector.
Proper management of costs amid the cautious outlook in the new normal post-Covid pandemic would be key to deliver returns to shareholders.
“Some of these companies need time to fully recover. Some have already reported profits though, while average selling prices (ASPs) have only seen marginal gains,” Lau told StarBiz.“The tariffs that US president Joe Biden had announced appear to be just academic. We’re not sure what will happen if Donald Trump takes over the US presidency in November.
“The stock market is looking for ideas and since these stocks are relatively cheap, I have a trading view on this matter,” he added.
Top Glove Corp Bhd , the biggest rubber glove maker in the world, will announce its third-quarter financial results ended May 31 tomorrow.
Hartalega Holdings Bhd , meanwhile, saw a turnaround in its fourth-quarter financial performance ended March 31 as it churned out a new profit of RM15.12mil from a net loss in the same quarter of the previous year based on slightly higher year-on-year revenue.
It said the better performance was due to higher ASPs, mainly attributable to favourable foreign currency exchange movements.
UOB Kay Hian (UOBKH) Research recently said it expects rubber glove companies to deliver sequentially better results in the upcoming quarters throughout 2024.
“From Top Glove, Hartalega and Kossan Rubber Industries Bhd ’s recent operating statistics, we observed that earlier ASP declines have come to a halt and are gradually trending up, while volume sales have seen a steep quarter-on-quarter improvement,” UOBKH Research said.
Moreover, it noted of input cost moderation, which would lift overall operating margins as cost of goods sold falls on lower natural gas tariffs and raw material costs.
It maintained its “overweight” stance on the rubber glove sector, noting the risk-reward view remains favourable.
UOBKH Research maintained its “buy” call on Hartalega and Kossan with target prices of RM3.92 and RM2.73, respectively.
It also maintained its “buy” call on Top Glove with a higher target price of RM1.28 following a recalibration of financial year 2025’s earnings to adjust for higher sales volume and utilisation rates.