• The US government has announced tariffs on rubber medical and surgical gloves which are set to rise 7.5% to 25% in 2026.

• We are mildly positive in the near term as there will be increased demand from US healthcare as they switch supply sources for rubber gloves from China to Malaysia. Since 2023, US has become more quality conscious with a trend of restricting Chinese glove makers by placing some of them on their Food & Drug Administration (FDA) import alert list.

• We expect Chinese players to build relationships with Asian and European markets within a year as orders gradually reduce from US customers. Notwitstanding a highly competitive pricing playing field against Malaysia, we do not discount Chinese players lowering prices further to offset the increased tariffs.

• In the medium-to-long term, we believe supply and demand will normalise as China glove makers are likely to shift their glove exports to other countries like Asia and Europe, lowering their exposure to US market.

• We favour Kossan Rubber and Hartalega given their current high exposure to US market, which ranges between 40% to 50%.

• Additionally, these 2 companies have been maintaining a good business relationship with US customers as well as no significant labour issues recently.

• We maintain OVERWEIGHT on the sector with BUYs on Hartalega (FV: RM3.20/share) and Kossan Rubber (FV: Under Review).

Source: AmInvest Research - 15 May 2024