CONCERNED over weak average selling prices (ASPs) due to strong competition and higher production costs, stock market analysts are left unconvinced with stronger growth projection of the rubber glove sector in 2022 by the Malaysian Rubber Glove Manufacturers Association (MARGMA).
Yesterday (March 31), MARGMA has projected that global glove demand will grow at a stronger rate of 12%-15% post-pandemic (vs pre-pandemic 8%-10%) with total glove demand in 2022 reaching 452 billion pieces.
The stronger growth projection is expected to be supported by (i) better hygiene awareness; (ii) higher glove consumption in countries with low per capita consumption of gloves as well as (iii) increasing usage of gloves in more sectors and industries.
“That said, we are still concerned over the headwinds faced by the glove makers currently (ie weak ASPs due to strong competition and higher production costs) and we do not expect the headwinds to dissipate in a short period of time,” opined Hong Leong Investment Bank (HLIB) Research analyst Sophie Chua Siu Li in a glove sector update.
“In our view, glove makers’ inability to fully pass on higher costs (due to stronger competition) would also compress margins further.”
Given the downside, HLIB Research has further downgrade its rating on Kossan Rubber Industries Bhd to “sell” (from “hold” previously) and consequently its outlook of the glove sector to “underweight” (from “neutral” previously).
While MARGMA is positive that increased glove usage in non-medical industry (ie food & beverage [F&B], tattoo parlour and semiconductor industry) would help to lift overall glove demand, HLIB Research doubted that this will contribute a significant boost as it expects the medical segment to continue dominating overall glove consumption.
Meanwhile, PublicInvest Research maintained its “neutral” rating on the glove sector as it expects margin to remain under pressure in the near term due to falling ASPs and higher input cost.
“Nevertheless, we are still positive of the long-term prospects of the glove sector due to growing demand from the emerging markets,” projected the research house.
With regard to the Government’s decision to raise the minimum wage level by 25% to RM1,500, MARGMA estimates that the overall production cost for glove makers will increase by 1%-3% depending on the workers’ profile in each respective glove maker.
With regard to foreign labour force, MARGMA said the Malaysian rubber glove industry hires circa 40,000 foreign workers which accounts for 1.7% of the total documented and undocumented foreign workers in Malaysia.
“With the re-opening of labour market to foreign workers, we understand that glove makers have submitted applications to collectively bring in another 30,000 foreign workers,” noted HLIB Research.
“The industry’s ‘automation push’ has also led to a huge reduction in the number of workers per output. Industry data suggests that it takes circa 1.6 worker to produce 1 million pieces of gloves currently from a high of 9.7 workers per million pieces of gloves in 2009.” – April 1, 2022
