Kenanga Research has maintained its “Underweight” rating on the glove sector and said that against its expectation, there was no sequential improvement in the glove makers’ 4QCY22 results as earnings tumbled further into a sea of red.
In a note on Wednesday (March 8), the research house said the results suggest recurring losses in subsequent quarters with declining average selling prices (albeit at a slower rate), exacerbated by elevated costs and low plant utilization amidst intense competition.
“We beg to differ from the Malaysian Rubber Glove Manufacturers Association (MARGMA) which expects the industry to turn the corner this year.
“Based on our demand-supply forecasts, it will take at least another two years of consistent demand growth to fully fill the current excess industry capacity.
“We believe that the pivot is more likely to happen in 2024, and do not have any top pick for the sector,” it said.
“Our 2023 forecasts assume: (i) an ASP per 1,000 pieces of USD20, translating to an estimated 10% decline over 2022, and (ii) an average plant utilisation of 50% vs. an estimated 60% in 2022.
“During the 2014/2015 downturn, ASP of nitrile gloves went as low as USD17/USD18 per 1,000 pieces while industry utilisation was at around 65%-70%.
“We advocate investors to avoid the sector for now, and not have any top pick for the sector,” it said.
