PETALING JAYA: Analysts have maintained their “underweight” call on the glove sector as September’s reporting quarter disappoints.
RHB Research said industry dynamics turned more nuanced while price competition intensified among Malaysian glove producers, leading to uneven quarter-on-quarter volume recoveries despite expectations of a stronger rebound following the absence of gas supply disruptions.
Industry-blended average selling prices (ASPs) slipped to US$21.30 per 1,000 pieces, as cost pass-throughs remained difficult in the face of softening raw material prices, it said.
RHB Research said of the six rubber product manufacturers under its coverage, only Top Glove Corp Bhd beat expectations while Hartalega Holdings Bhd reported in-line results, with the remaining missing projections.
Among the research unit’s key observations include uneven volume recovery and unfavourable shift in sales mixes towards non-US markets, widening ASP divergence across manufacturers, given differing operating strategies; and sequential improvements in earnings before interests and tax per carton, supported by operational efficiencies and lower input costs.
Its earnings estimate revisions mainly reflect lower sales volume assumptions and US dollar/ringgit expectations.
RHB Research said management commentaries across briefings indicated continued ASP pressure, potentially exacerbated by incremental supply from China manufacturers with offshore facilities.
“Indonesia-based capacity has begun commissioning in stages, with ASPs estimated at US$1 to US$2 below prevailing US ASPs of US$17 to US$18 per 1,000 pieces for generic products.”
Operating expenditure headwinds are set to materialise, including the mandatory Employees Provident Fund contribution for foreign workers which is expected to raise glovemakers’ cost of production by 0.1% and the multi-tier levy mechanism on foreign workers which could raise production costs by about 0.4% to 0.5%, it said.
The only silver lining is whether ongoing cost-rationalisation initiatives can translate into meaningful margin expansion, according to RHB Research.