• 3Q24 earnings show three rubber glove companies under our coverage namely Top Glove, Kossan, and Supermax fell short our in-house estimates while Hartalega met expectations.

• On a quarterly comparison, revenue showed improvement, but earnings were weighed down by forex losses which impacted the overall performance of the top four rubber glove players.

• The recent US tariff hike on China presents a potential opportunity for Malaysian rubber glove manufacturers by making Chinese products less competitive in the US. Nevertheless, the overall outlook for the sector remains challenging due to persistent structural issues.

• We have downgraded our call on the Rubber Glove sector to UNDERWEIGHT from NEUTRAL as we believe that the industry’s outlook remains pressured by ongoing structural issues and that a recovery to pre-COVID levels is not expected in the intermediate term. We have a HOLD call for Top Glove (TP: RM1.14) and a SELL call for Hartalega (TP: RM2.90), Kossan (TP: RM2.00) while NON-RATED for Supermax.

Mixed Earnings Performance, with Supermax Facing Largest Forex Losses

During this quarter under review, three rubber glove companies under our coverage namely Top Glove, Kossan, and Supermax reported earnings below our in-house estimates, while Hartalega showed inline results. The lower-than-expected earnings for the companies mentioned above were largely due to higher operating costs and impacted by higher unrealized forex losses following the weakening of the USD. On a QoQ basis, we observed that revenue for all four major rubber glove companies improved arising from a gradual improvement in order replenishment. Meanwhile, core profit margins were mostly subdued, as this was impacted by the weakening of the USD against the MYR, which the MYR appreciating by 12.6% QoQ during 3Q24. Among the rubber glove players, Supermax was the most impacted by the weakening USD, recording unrealized forex losses of RM44mn during the quarter under review.

US Tariff Hike Boosts to Malaysian Glove Makers but Risks Persist

We view the recent US tariff hike on Chinese products positively, as it could provide Malaysian rubber glove manufacturers with a competitive advantage by making Chinese gloves less price-competitive in the US market. However, we remain cautious about China diversifying into non-U.S. markets, which could heighten competition for Malaysian producers. Additionally, the rubber glove industry continues to face oversupply and while demand remains steady in some regions, there are still lack of catalysts for strong growth in the near term. Ongoing raw material price fluctuations and market volatility further complicate the outlook, leading us to adopt a cautious stance on the sector’s short- to medium-term.

Downgraded to UNDERWEIGHT from NEUTRAL Call on Rubber Glove Sector

We have downgraded our call on the Rubber Glove sector to UNDERWEIGHT from NEUTRAL, as we believe the industry’s outlook remains under pressure by ongoing structural issues and a recovery to pre-COVID levels is not expected in the intermediate term. We have a HOLD call for Top Glove (TP: RM1.14) and a SELL call for Hartalega (TP: RM2.90), Kossan (TP: RM2.00) while NON-RATED for Supermax.

Source: BIMB Securities Research - 4 Dec 2024