KUALA LUMPUR (June 23): CIMB Securities said Malaysian glove manufacturers could benefit from the European Union’s (EU) exclusion of Chinese companies in public tenders for medical devices, valued at over €5 million (RM24.5 million).

The exclusion could result in stronger demand from EU buyers seeking alternatives to China-sourced gloves.

The EU was Malaysia’s second-largest glove export market by region in 2023, accounting for an estimated 28%–30% of Malaysia’s total glove exports, said CIMB.

“This will limit Chinese companies’ access to approximately €150bn (billion) annually in EU public spending within this segment. 

“While tenders exceeding €5m (million) accounted for only about 4% of total tender count in 2023, they represented around 60% of total tender value,” said the house in a note on Monday.

The move is a response to the EU concluding that EU companies do not have fair access in China, as Chinese tenders have been heavily biased towards local suppliers that often have artificially low bids, CIMB said.

The research firm has highlighted that glove sales contracts are normally short-term and lower in value, because of the frequent changes in average selling prices (ASPs) and the cost pass-through mechanism employed by industry players.

As a result, the majority of glove orders fall below the €5 million line, or about 287 million pieces, assuming an ASP of US$20 per 1,000 pieces. 

“Additionally, we believe Chinese glove makers could potentially restructure their EU contracts by splitting larger orders into smaller tranches to remain below the €5m sales threshold, mitigating the impact of the procurement restriction,” it said.

CIMB expects any uptick in EU demand for gloves from other countries, including Malaysia, to be short-term, three- to six months at best, as the EU and China have expressed willingness to negotiate. 

This would likely happen during the EU-China Summit, scheduled for July.

The potential increase in demand would be an additional boost for the sector, on top of expected expansion in the US rubber-glove market.

“While we anticipate potential near-term share price re-ratings for glove stocks following this announcement, we expect Chinese glove makers to pursue workarounds, such as leveraging EU-based trading partners, or exporting from manufacturing facilities outside China.”  

CIMB maintains a “neutral” recommendation on the sector because of persistent challenges, such as a difficult operating environment with low sales demand, and higher costs due to the recent rise in the sales and service tax (SST) and the minimum wage.

Its preferred pick for the sector is Kossan Rubber Industries Bhd (KL:KOSSAN), while maintaining “hold” calls on Top Glove Corporation Bhd (KL:TOPGLOV), Hartalega Holdings Bhd (KL:HARTA), and Supermax Corporation Bhd (KL:SUPERMX).