The research house said in a note today that despite some remaining challenges, the glove sector’s outlook will gradually improve moving forward.
“While the glove industry might not be out of the woods, we believe the worst is over in terms of earnings downgrades, underpinned by easing cost pressures and savings emanating from decommissioning of older plants moving into the second half of 2023,” it said.
“In the meantime, any further decommissioning of older production facilities from local players could take more supply pressures off the sector,” it added.
A reduced production capacity from the decommissioning of older facilities, it said, will potentially lead to healthier competition and reduced loss among the industry’s players.
Following the updated sector outlook, Kenanga has improved their recommendations for Hartalega Holdings Bhd, Top Glove Corp Bhd, and Kossan Rubber Industries Bhd to “market perform” from “underperform”, with respective target prices (TPs) of RM1.85, 75 sen, and RM1.28.
Meanwhile, it has maintained a “market perform” rating for Supermax Corp Bhd with a TP of 80 sen.
However, Kenanga noted that glove manufacturers face strong headwinds in the near term, particularly the issue of massive oversupply.
“Nevertheless, we expect the oversupply situation to be less acute and gradually improve following signs of players culling production capacity via decommissioning of selective plants,” it said.
Kenanga estimates that the demand-supply situation will only start to head towards equilibrium in 2025, as there would virtually be no more new capacity coming onstream then.
Furthermore, it noted that the global demand for gloves has continued to rise by 15% per annum underpinned by rising hygiene awareness.
At noon break, Hartalega’s share price was up by four sen (2.02%) at RM2.02, giving it a market capitalisation of RM6.92 billion.
Top Glove’s and Kossan’s share prices were each up by one sen (1.32%) and two sen (1.47%) at 76.5 sen and RM1.38. Both companies had a market capitalisation of RM6.2 billion and RM3.5 billion respectively.
Supermax’s share price was up by 1.5 sen (1.94%) at 79 sen, giving it a market capitalisation of RM2.15 billion.