KUALA LUMPUR: The glove sector is poised to sustain its earnings recovery momentum, supported by emerging signs of a robust global demand recovery, according to Kenanga Investment Bank Bhd (Kenanga Research).
The firm said the sector will continue to gain traction driven by continuous earnings recovery, higher volume sales, improving supply-demand dynamics and potential increase in the average selling prices (ASPs).
The optimism, it said, are based on indications that are pointing towards a strong demand recovery moving into 2025, underpinned by inventory rebuilding from distributors and faster-than-expected industry consolidation.
"There has been an uptick in orders over the past three quarters. The rise in demand comes as the inventories of major distributors across all regions have returned to normal levels.
"Signs of predatory pricing by certain overseas players (i.e. selling below cost over an extended period of time to eliminate competitors) have diminished," Kenanga Research said.
The glove players are optimistic that ASPs are expected to inch up gradually, potentially by US$1 per 1,000 pieces to between US$20 and US$22 per 1,000 pieces due to the uptick in demand and mitigation against the appreciating ringgit against the greenback.
Furthermore, the US imposition of tariff ratchets up to 50 per cent and 100 per cent in 2025 and 2026, respectively, making Malaysian glove makers the prime beneficiaries.
For illustration, Kenanga Research said a 50 per cent tariff hike is expected to raise Chinese glove producers' ASP to US$25 per 1,000 pieces from a base case at US$19 per 1,000 pieces.
"This compares with Malaysian players' ASPs currently at US$18−21 per 1,000 pieces.
"We expect Malaysian glove makers to benefit from the US import tariff hike from 7.5 per cent to 50 per cent on Chinese glove imports in 2025.
"The net effect is positive for Malaysia as any volume loss in non-US markets can be offset by higher demand from the US considering that US historically accounts for 35 per cent to 40 per cent of Malaysia's total glove volume."
The firm added that American buyers are less likely to source most of their supplies from China given the current geopolitical tensions between the US and China, as well as the tariff hike.
It noted that some buyers have already begun shifting their purchases to Malaysia as a risk management strategy, which could potentially benefit Malaysian players.
Kenanga Research kept its "overweight" stance on glove sector with Hartalega Holdings Bhd and Kossan Rubber Industries Bhd as the top picks given their bigger US sales exposures.