KUALA LUMPUR: Glove counters rose in early Tuesday trading following a recent announcement by the US Trade Representative (USTR) on substantial tariff increases imposed on Chinese imports, including a phased tariff structure for medical face masks and surgical gloves.

As of 9.55am, Top Glove advanced 12.5 sen to RM1.04, Careplus gained three sen to 29 sen, Hartalega surged 59 sen to RM3.01, Supermax increased 10 sen to 89 sen and Kossan Rubber Industries appreciated 28 sen to RM2.11.

On Sept 13, 2024, the USTR announced substantial tariff increases on Chinese imports, starting at 50 per cent in 2025 and escalating to 100 per cent by 2026, up from the initially proposed 25 per cent in mid-May 2024.

Public Investment Bank anticipated the tariff hike would drive a shift in production towards non-Chinese suppliers, which will likely benefit Malaysian glove makers under its coverage, namely Top Glove, Hartalega, and Kossan.

"We view this development positively, especially considering the recent ramp-up in production capacity, as it is likely to enhance the position of Malaysian glove manufacturers and expand their global market share," it said in a research note today.

The investment bank also anticipated favorable market sentiment for Malaysian glove manufacturers inthe short term, reaffirming its overweight rating in the glove sector.

"We expect Malaysian glove manufacturers to regain pricing power due to the significant tariff hikes.

Assuming Chinese players do not absorb the increased tariffs, the current price gap of US$2-3/1,000 pieces is likely to narrow further.

"With Chinese gloves currently priced at US$17-18/1,000 pieces and Malaysian gloves at US$20-21/1,000 pcs, the higher tariffs are expected to enhance the competitiveness of Malaysian producers by further reducing the price disparity," added Public Investment Bank.

Hong Leong Investment Bank (HLIB) believed the event would result in a tariff-led volume/average selling price (ASP) surge among Malaysian glove makers in the fourth quarter of 2024 (4Q 2024) and the 1Q 2025. Still, it may not have a significant incremental effect on its 2026 forecast.

It added that this would benefit most Malaysian players, albeit biased towards Hartalega and Kossan.

"We maintain our earnings forecasts from financial year (FY) 2024 to FY2027 for Hartalega and Kossan; we conservatively believe that the higher-than-expected demand/ASP in 4Q 2024 to 1Q 2025 could be partially offset by recent and potential forex volatility," said HLIB.

With the recent share price weakness and positive development from USTR, HLIB also believed that the risk-reward ratio has once again become favourable and the glove sector could regain market interest.