THAT Top Glove Corp Bhd has been on a reverse gear which entirely erased all gains when the glove maker shot up to an intraday four-week high of RM3.43 at the height of fears over the Omicron invasion (on Nov 26 and 29) speaks volume of the prospect of the glove sector.
Having touched a new 52-week low of RM2.01 yesterday (Dec 13) is a tell-tale sign that the world’s largest glove maker and its Big-Four peers could be re-visiting their pre-pandemic share price levels on the back of normalising average selling prices (ASPs) and stiff competition both locally and abroad (especially from China).
In its 2022 glove sector outlook, Maybank IB Research raised concerns that ASPs have yet to find a bottom, hence does not think that the time is ripe to bottom fish glove stocks just yet.
“While new COVID variants such as Omicron may slow down the decline in ASP, the underlying structural negative ASP trend will remain intact,” argued analyst Wong Wei Sum in the research house’s recent Malaysia 2022 Outlook and Look-outs.
“Additionally, we expect interest in COVID-related stocks such as gloves to wane as the vaccination rate rises globally.”
Maybank IB Research further expects 2022 ASP outlook to stay challenging due to normalising demand and rising supply, especially from China glove makers.
ASP has peaked in 1H 2021 and has been falling faster-than-expected since the May-June period (peak: US$130-140/1,000 pieces in early 2021 vs circa US$30-32/1,000 pieces in November) and is expected to return to pre-COVID levels of US$23-24/1,000 pieces by mid-2022, according to the research house.
“Rubbing salt into the wound are other issues such as lower utilisation rates and additional operating costs on stricter SOPs (standard operating procedures) as well as labour shortage,” noted the research house which maintained its “negative” outlook on the sector.
Apart from labour shortage, Affin Hwang Investment Bank is also wary about allegations of mistreatment of foreign labour which could also negatively impact demand for Malaysian rubber gloves.
“Over the past two years, the US CBP (Customs and Border Protection) has put four Malaysian rubber glove manufacturers under its withholding list due to use of forced labour in their production process,” observed analyst Ng Chi Hoong in the research house’s 2022 strategy.
“The US is the largest market for the Malaysia rubber glove manufacturers with around a 25% market share.”
Although it assumed that ASPs will start to stabilise by 1Q 2022, Affin Hwang IB expects an upside risk if the current vaccines are ineffective against any new COVID-19 strains, hence spurring demand for spot orders again.
“Although we are expecting share prices to trade sideways for most of 2022, we believe news flow on new variants is likely to cause spikes in share prices as investors assess the severity of the variant,” opined the research house while reiterating its “neutral” stance on the sector. – Dec 14, 2021
