AVERAGE selling prices (ASP) of gloves will begin to taper off in the first quarter of 2021, according to AmInvestment Bank, citing the increase in industry capacity exerting downward pressure on prices.
“We think that the ASP will begin to taper off in 1Q21 after the expected increase in ASP until the end of 2020, which have been priced in,” said AmInvest analyst Nafisah Azmi.
It was also noted that the large glove producers have plans to increase capacity by 21% by the end of 2020, 23% in 2021, and 27% in 2022.
“We believe that the higher supply of gloves from the expanded capacity will more than offset
the increase in demand. Moreover, we think that the recent strides in vaccine formulation will affect the ASP of gloves as the urgency of glove orders would lessen,” said Nafisah.
The increase in capacity will add 126 billion pieces worth of capacity in 2 years, an increase of 54, by the end of 2022, according to the analyst. Nafisah believes this bodes well in terms of ability to cater to a higher volume of orders for the next year, but that a short term supply glut will come back into play in 2022.
“On a positive note, we expect sales volume to continue growing in 2021 as we anticipate a structural change in the way gloves are used. There will be a new normal where glove usage per capita will increase as hygiene measures become stricter.”
“The glove consumption per capita in emerging markets such as India and China is low at around 2 to 6 gloves as opposed to circa 100 to 280 gloves for developed countries,” said Nafisah.
The analyst also noted that, at current share price levels, the valuations of Top Glove Corporation Bhd, Kossan Rubber Industries Bhd, and Hartalega Holdings Bhd have fully priced in the companies’ earnings outlook.
This leads to a downgrade of the sector to a neutral recommendation by AmInvest, with Hold calls on Top Glove, Kossan, and Hartalega, with fair values of RM25.70, RM15.74, and RM18.74 respectively. – Aug 25, 2020
