Glovemakers continue to face challenges

PETALING JAYA: The outlook for glovemakers remains dim as challenges since the beginning of the year including supply-demand pressures, lower average selling prices (ASPs) and the threat of US tariffs, continue to weigh on their operations and earnings.

Hong Leong Investment Bank (HLIB) Research has reiterated a “neutral” call on the glovemakers, with Kossan Rubber Industries Bhd being the only stock with a “buy” call and an unchanged target price (TP) of RM2.30.

It noted that Kossan stood out despite the rising market uncertainties due to the company’s differentiated strategies in product customisation and automation, with a possibility of a rerating should there be consistent delivery of stronger earnings.

The research house suggested that investors accumulate tactically and gradually, rather than taking full position at once, given the growing risk-off sentiment on glovemakers.

“Its solid financial footing, underpinned by a robust balance sheet with a net cash position of RM1.56bil (or 61 sen a share), the highest among peers under our coverage, further reinforces its resilience.”

HLIB Research said there were growing concerns over supply-demand equilibrium in the second half of this year due to Intco Medical Technology Co Ltd, a Chinese medical consumables manufacturer, planning to produce more gloves in Indonesia and Vietnam.

“A projected 20 to 23 billion pieces per annum of new capacity is expected by end-2025. While this represents a modest 3.9% to 4.5% year-on-year increase from the estimated global supply of 515 billion pieces per annum in 2024, it would account for 44% to 51% of the estimated incremental demand of around 45 billion pieces per annum in 2025, substantial enough to disrupt the supply-demand dynamics.

“We believe Intco will continue to expand in 2026 and beyond, with the strategy to deliberately keep industry-wide plant utilisation rate below the equilibrium threshold of 85% to suppress ASPs and pressure regional competitors into razor-thin or negative margins,” it said.