KUALA LUMPUR: Raw material costs are expected to normalise while natural gas prices are poised to trend downward in the second half of 2024 (2H24), giving room for the glove sector to sustain operating margin.
Public Investment Bank Bhd (PublicInvest Research) stated in a note that the raw material prices, namely nitrile butadiene, have been rising, albeit slightly, while the latex price has dropped since April 2024.
"We anticipate that overall raw material price to normalise in 2HCY24, giving room to sustain operating margin. Additionally, natural gas prices are expected to trend downward during the same period.
"Meanwhile, the weakening of the US dollar is likely to have minimal impact on the bottom line, as the normalisation of US dollar quoted raw material costs creates a natural hedge against fluctuations in glove pricing.
"Consequently, we do not foresee any significant impact on operating costs or profitability due to currency movements," it said.
It added recent results from the glove manufacturers under its coverage indicated an uptick in sales volume, driving sequential revenue growth.
While Top Glove Corp Bhd remains in a loss-making position, Hartalega Holdings Bhd reported a core net profit of RM36.7 million, and Kossan Rubber Industries Bhd achieved a core net profit of RM26.8 million.
"We gather that customers are more receptive to upward adjustments in average selling prices (ASPs) as inventories deplete. Currently, the industry's blended ASPs are hovering around US$20-21 per 1,000 pieces of gloves," it said.
Hartalega is ramping up its new NGC1.5 production capacity, which is expected to increase by c.16 per cent.
This expansion is supported by encouraging demand trends, as evidenced by the current NGC1.0 facility operating at a healthy 78 per cent utilisation rate.
Similarly, Kossan is adding six new production lines slated for completion by financial year 2024 (FY24), aimed at reducing labour costs and improving overall operational efficiency.
The firm is optimistic on the Malaysian glove sector's outlook, driven by increasing sales volumes, rising ASPs, and improving operational efficiency due to better economies of scale.
It upgraded to an "overweight" call on the sector, with Kossan and Hartalega as top picks.