Clearer Skies for Malaysia Rubber Gloves

Date: 28/08/2019

Stock  :  HARTA       Price Target  :  4.05      |      Price Call  :  SELL
        Last Price  :  14.48      |      Upside/Downside  :  -10.43 (72.03%)
Stock  :  TOPGLOV       Price Target  :  5.02      |      Price Call  :  BUY
        Last Price  :  6.88      |      Upside/Downside  :  -1.86 (27.03%)

Post industry checks and analysis, Macquarie Equities Research (MQ Research) believes Malaysia remains more competitive than Thailand in the rubber gloves sector due to cost, pricing and product offering.

MQ Research prefers Top Glove on better earnings trajectory and cheaper valuation, per its research report dated 26 August 2019.


  • Year-to-date (YTD), the glove sector has underperformed the KLCI by 10-11%, on market concerns about Thailand’s largest glove maker, Sri Trang, expanding in Malaysia’s latex glove segment. Post MQ Research’s industry checks and analysis, it believes Sri Trang may not be a permanent threat, as Malaysian manufacturers remain more competitive in cost, pricing and in product offering that caters to current demand. The sector also has better order visibility for nitrile gloves, indicating demand recovery. This is likely to support earnings in the sector.


  • Is Sri Trang a threat? With Sri Trang’s aggressive expansion plan, MQ Research does not rule out price competition in latex gloves affecting Malaysia manufacturers like Top Glove and Supermax who have a higher revenue mix of latex gloves. However, MQ Research’s analysis shows Malaysia manufacturers remain competitive in terms of cost, pricing and product offering that caters to current demand dynamic. In MQ Research’s view, Sri Trang may not be a permanent threat to Malaysia manufacturers.
  • Better order visibility for nitrile gloves. Based on MQ Research’s industry checks, most of the Malaysian manufacturers have experienced longer order lead times for nitrile gloves since mid-2019. This is partly due to customers replenishing their inventory. With the current order lead and several expansion deferments, MQ Research views market dynamic as balanced in 2H19; however, 2020 could have a surplus of 5.6bn pcs if the scheduled expansion remains intact.
  • Trade diversion can mitigate the overcapacity risk in 2020. President Trump has announced that the tariff on Chinese medical and vinyl gloves – which amount to US$300bn of imports – will be raised from 10% to 15%. United States imports c.6bn pcs/annum of Chinese medical rubber gloves from China. MQ Research’s checks indicate post-tariff average selling price (ASP) of Chinese gloves will be similar or higher than that of Malaysian gloves. MQ Research thinks this new demand can be absorbed by the scheduled expansion plan and mitigate the aforementioned overcapacity risk in 2020. If there is any major shift from Chinese medical gloves to Malaysian gloves, MQ Research expects Top Glove and Hartalega to benefit, due to their large market presence in the US and to them having added the most capacity in 2H19-2020. MQ Research’s blue-sky valuation for Top Glove and Hartalega is RM6.27 and RM6.80 respectively.


  • MQ Research prefers Top Glove (TOPG MK, OP, TP: RM5.02) over Hartalega (HART MK, UP, TP: RM4.05) owing to cheaper valuation and better earnings trajectory with +10% 3-yr earnings per share (EPS) compounded annual growth rate (CAGR) vs. HART’s EPS CAGR at +4%.

12-month Target Price Methodology

  • TOPG MK: RM5.02 based on a PER methodology
  • HART MK: RM4.05 based on a PER methodology

Source: Macquarie Research - 28 Aug 2019

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Related Stocks

Chart Stock Name Last Change Volume 
HARTA 14.48 +0.02 (0.14%) 2,041,900 
TOPGLOV 6.88 -0.47 (6.39%) 47,849,500 

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