KENANGA Research is probably the only of the few research house in town which is still bullish of the glove sector judging from it retaining an “overweight” outlook on the sector in its latest assessment.
This is despite the research house acknowledging that the recent round of reporting season for glove makers suggested that the average selling price (ASP) trend is expected to soften faster than expected in subsequent quarters.
“Due to over-ordering in the past 15 months since the pandemic started, the market is currently undergoing a phase of inventory adjustment,” justified analyst Raymond Choo Ping Khoon in his rubber glove sector review.
“From Top Glove Corp Bhd’s 4Q FY8/2021 results briefing recently, we gathered that its ASPs have dropped faster than expected at 31% quarter-on-quarter (qoq) to US$48/1,000 pieces. We believe this signals acceleration in overall market ASP normalisation.”
Kenanga Research further noted that it is unable to quantify as to how low ASP will fall to although glove manufacturers are of the view that ASP is unlikely to go below pre-COVID pricing considering that the cost structure has risen.
“This includes among others social compliance costs and the high nitrile feedstock cost compared to the pre-COVID era,” observed the research house. “Post COVID-19, lower ASP and/or inventory restocking cycle are expected to spur demand coupled with increased usage arising from new users and higher hygiene awareness.”
If past history is of any guide, Kenanga Research said players are cognisant of oversupply concerns and are adopting a discipline approach to expansion which is expected to curtail excess supply.
“A quick check from its latest presentation slides revealed that Top Glove has scaled down new capacity expansion by 14% in CY2021 which is positive,” opined the research house.
“Kossan Rubber Industries Bhd’s Bidor plant is only expected to commence in 2023 while Hartalega Holdings Bhd is only expected to commence its next generation integrated glove manufacturing complex (NGC) 1.5 in early CY2022.”
Expecting ASPs to normalise in 1H CY2022 against earlier expectation in FY2023, Kenanga Research retained its “outperform” rating on Hartalega and Top Glove with target prices of RM8.85 (previously RM11.35) and RM3.60 respectively.
However, the research house downgraded its stance on Kossan and Supermax Corp Bhd to “market perform” (from “outperform” previously) with target prices of RM2.45 (previously RM5) and RM2.35 (previously RM5) respectively. – Sept 30, 2021
