MALAYSIAN glove makers can give a sigh of huge relief that concerns over global trade disruption stemming from the blockage caused by a wedged vessel at the Suez Canal – an important shortcut between Asia and Europe – will have little financial impact on them.
Although the European market accounts for 30-40% of the glove makers’ sales volume, preliminary estimates by PublicInvest Research suggested that a two-week disruption would have a mere impact of circa 1% to the glove players’ FY2021F earnings (FY2022F for Hartalega Holdings Bhd).
“Apart from that, the potentially higher freight charges should not erode the glove players’ margins as shipping costs are usually borne by buyers,” opined analyst Chua Siu Li in a rubber glove sector update.
“Given the minimal impact, we maintain our ‘overweight’ call on rubber gloves.”
While efforts to free the wedged vessel are underway, dislodging the huge ship might take weeks. An extended disruption might worsen the container shortage situation, resulting in revenue recognition delay for glove makers.
Delving further into the issue of vessel shortage, PublicInvest Research observed that the situation has eased slightly in early-2021, but it has yet to return to normal.
“We are of the view that this recent waterway blockage in Egypt will further exacerbate the situation,” reckoned the research house.
“Glove makers typically recognise revenue when goods are delivered to the ports. As they are expected to secure a vessel booking prior to transporting the goods to the port, the vessel shortage situation might result in a revenue recognition delay.”
At the moment, shipping companies can redirect their vessels to an alternative route – the Cape of Good Hope – but shipping time will be extended by two weeks. – March 29, 2021