AmInvest keeps overweight call on glove sector

THE glove sector is expected to be bullish at least for the next 12 months on the back of low raw material prices and growing sales, said AmInvestment Bank.

The research house has decided to keep its overweight call on the sector.

“We believe that selling prices will continue to soar in the next six months as lead time stretches up to 12 months,” AmInvest analyst Nafisah Azmi said in a note today.

The glove companies’ earnings would be further boosted by expanded margins as raw material prices remain low, selling prices continue to grow, US dollar continues to strengthen over the ringgit and expansion plans remain intact for the glove producers, she said.

“In terms of demand, we expect sales volume and average selling price (ASP) to grow exponentially in 2H2020 in light of the Covid-19 pandemic.

“The higher demand has resulted in a shortage of supply, pushing up average selling prices for these medical gloves. ASPs are trending upwards and glove makers now guide for more than 5%-15% q-o-q gradual increases, while spot selling prices for gloves skyrocketed 100-400% in the past few months as panic buying of gloves ensues,” she said.

As total rubber glove export value from Malaysia grew 21.4% y-o-y to RM6,868 bil in January-April 2020, “we think that the trend will continue well into 2021 until a Covid-19 vaccine is available to the masses. In the meantime, usage of rubber gloves will remain a priority not only in the medical sector but across various industries,” Nafisah said.

Beyond the Covid-19 pandemic, the research house anticipated a structural change in the way gloves were used, forming a new normal where glove usage per capita will increase as hygiene measures become stricter, she added.

“This is expected to apply not only in the healthcare sector but also across different industries like F&B. The glove consumption per capita in emerging markets such as India and China is low at around 2-6 gloves as opposed to circa 100-280 gloves for developed countries,” Nafisah said.

But AmInvest also cautioned possible downward pressure in 2022F. This is “due to lower urgency of orders with higher supply of gloves from expanded capacity,” Nafisah said. – July 7, 2020

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