PETALING JAYA: There is plenty of optimism in the glove industry, underpinned by the expanding healthcare industry for both public and private sectors, as well as the rising hygiene standards that drive the demand for gloves over the long term, according to AmInvestment Bank.
On Tuesday, the country’s top three glove makers, namely Top Glove Corp Bhd, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd (Big Three), saw their share prices jump to all-time highs.
Today, Top Glove gained 7.62% or 57 sen to RM8.05 on some 9.18 million shares done, while Hartalega rose 6.34% or 68 sen to RM11.40 with 4.9 million shares changing hands. Meanwhile, Kossan gained 1.93% or 16 sen to RM8.46 with 1.6 million shares traded.
However in its report today, AmInvestment said it is maintaining its “neutral” stance on the sector as it believes the market has fully priced in the sector’s strong fundamentals.
The research house noted that the Malaysian Rubber Glove Manufacturers Association has projected the global glove demand to grow by 8% to 10% per annum in the coming years.
Over the immediate term, it said Malaysian glove makers will also continue to benefit from the glove supply shortage in China, following the massive shutdown of vinyl glove factories in China recently due to environmental issues.
“However, we are mindful of a potential supply glut at some point, with most players having embarked on aggressive capacity expansion in recent years. This could end in severe price undercutting that would hurt margins,” it said.
Meanwhile, the research house said it estimates the combined production capacity of the “Big Three” will expand by a whopping 17% to 121 billion pieces annually in 2018, versus a 7.5% growth this year.
Additionally, it said with input costs denominated largely in ringgit while export sales in US dollar, glove makers stand to lose from a strengthening ringgit (a reversal from the windfall they enjoyed due to the weakening ringgit in recent years).
AmInvestment’s top pick for the sector is Kossan, with a fair value of RM7.51.
“We like Kossan for its strength in research and development which translates to product innovation; investments in automation which boost efficiency and cut reliance on foreign labour; and earnings buffer from a non-glove business,” it added.
Source: The Sun Daily