THE Malaysian glove sector is showing promising signs of recovery, evidenced by increased sales volumes and rising average selling prices (ASP), which has been a driver of sequential revenue growth.

In response to improved utilisation rates, key players are adding production capacity to meet rising demand. 

“We expect raw material costs to normalise and natural gas prices to trend downward in the second half calendar year 2024 (2HCY24), giving room to sustain operating margin,” said Public Investment Bank (PIB) in the recent Sector Update report.

Prices of glove stocks have shed 25% since end July 2024 due to global market correction, and PIB views this as a good opportunity to accumulate as they expect earnings to improve sequentially. 

“All told, we upgrade the rubber gloves sector from Neutral to Overweight,” said PIB.

Recent results from the glove manufacturers under their coverage indicate an uptick in sales volume, driving sequential quarter-on-quarter revenue growth. 

While Top Glove remains in a loss-making position, Hartalega reported a core net profit of RM36.7mil, and Kossan achieved a core net profit of RM26.8mil. 

“We gather that customers are more receptive to upward adjustment in ASPs as inventories deplete,” said PIB.

Currently, the industry’s blended ASPs are hovering around USD20-21/1k pcs of gloves. Hartalega is ramping up its new NGC1.5 production capacity, which is expected to increase by 16%.

This expansion is supported by encouraging demand trends, as evidenced by the current NGC1.0 facility operating at a healthy 78% utilisation rate.

Similarly, Kossan is adding six new production lines slated for completion by financial year 2024, aimed at reducing labour costs and improving overall operational efficiency. 

“We observed that the raw material prices, that is nitrile butadiene has been rising albeit slightly, while latex price has dropped since April 2024. We anticipate that overall raw material price to normalise in 2HCY24, giving room to sustain operating margin,” said PIB.

Additionally, natural gas prices are expected to trend downward during the same period. 

Meanwhile, the weakening of the USD is likely to have minimal impact on the bottom line, as the normalisation of USD quoted raw material costs creates a natural hedge against fluctuations in glove pricing. 

Consequently, PIB does not foresee any significant impact on operating costs or profitability due to currency movements. 

“We are optimistic on the Malaysian glove sector’s outlook, driven by increasing sales volumes, rising ASPs, and improving operational efficiency due to better economies of scale,” said PIB.

With raw material costs expected to normalise in 2HCY24, PIB forecast margin expansion leading to greater profitability. Their preferred picks are Kossan and Hartalega. - Sept 2, 2024 

https://focusmalaysia.my/glove-sector-recovers-with-key-players-ramping-production-to-meet-rising-demand/