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Glove stocks lose steam as investors brace for USD-ringgit exchange rate normalisation, rising operating costs

07 Feb 2024, 19:53 PM SGT

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KUALA LUMPUR (Feb 7): Glove stocks lost steam on Wednesday as investors expect the normalisation in the US dollar-ringgit exchange rate as well as rising operating expenses to continue to pose challenges for the glove industry, despite recent improvements in demand.

As customers are reluctant to absorb additional costs, and are still pricing competition from Chinese glove manufacturers, the average selling prices are anticipated to remain stagnant, noted Public Invest Research in a note on Wednesday.

In addition, the demand-supply situation in the rubber gloves industry may only head towards equilibrium in 2026, when there is virtually no more new capacity coming on-stream, noted Kenanga Investment Bank Bhd in a note dated Wednesda.

“We project the demand for gloves to rise by 30% in CY2024 to 390 billion pieces (due to a low base effect in CY2023) and resume its organic growth of 15% thereafter. This will result in an excess capacity of 212 billion pieces in CY2024.

“The overcapacity still persists which means low prices and depressed plant utilisation will continue to plague the industry in CY2024,” Kenanga said in the note.

On Wednesday, Hartalega Holdings Bhd was among the top 20 losers on Bursa Malaysia, with its share price down by six sen or 2.26% to close at RM2.60 per share. This was despite the group posting decent results for its third quarter ended Dec 31, 2023 (3QFY2024).

The other major rubber glove players were also in the red on Wednesday.

Top Glove Corporation Bhd, the world’s largest rubber glove manufacturer, saw its share price fall 2.5 sen or 2.75% to 88.5 sen on Wednesday while Kossan Rubber Industries Bhd slipped two sen or 0.99% to RM2.

Top Glove saw 35.18 million shares changing hands, making the counter the 12th most traded on Wednesday.

Supermax Corporation Bhd’s share price lost two sen or 2.2% to close at 89 sen while Careplus Group Bhd dropped half a sen or 1.52% to close at 32.5 sen.

The decline in share prices of rubber glove players contributed to the Bursa Malaysia Healthcare Index’s 13.98 points decline to 1,955.63 points, which was 0.71% lower than the day before.

Hartalega posted a RM22.38 million net profit for 3QFY2024 — its second straight quarterly profit — versus a RM31.91 million net loss a year earlier, despite revenue falling 10% to RM415.64 million from RM461.84 million previously.

Compared with 2QFY2023, its net profit declined by 21.17% quarter-on-quarter (q-o-q) from RM27.7 million as revenue decreased by 8.06% q-o-q from RM452.09 million.

Despite Hartalega’s decent 3QFY2024 earnings, Rakuten vice president of research Thong Pak Leng said investors still remain cautious and are waiting for confirmation of consistent improvement in overall glove market conditions before deciding whether to invest in the glove sector.

“The overall [glove] market is currently experiencing weakness.  Only if all [glove] players are making profits, then people will begin to KIV [keep in view] them. The macroeconomic situation is currently not conducive to favorable market conditions,” he told The Edge.

Edited ByKamarul Azhar Azmi

Source: https://theedgemalaysia.com