AmInvestment Bank Bhd expects the average selling price (ASP) for rubber gloves to decline as there is no desperate need for the product compared to what happened when the Covid-19 pandemic just started.
However, the firm hopes the ASP will be stabilized at a higher level than during the pre-pandemic following the widespread use of gloves. In addition, capacity expansion from glove companies will be able to meet demand in the future.
"We expect ASP to start declining after the first half of 2021 following strong demand over the past nine months.
"Furthermore, we lowered the price-to-earnings ratio target by 10% as a whole taking into account the risk of a downward cycle in this sector due to the successful launch of the Covid-19 vaccine," the firm said in a note today.
According to Bernama, although the firm is confident that the base of rubber glove manufacturers will remain stable in the next few years, they are offering a limited increase in current stock prices.
Therefore, AmInvestment Bank advises investors to accumulate stocks at a lower level.
AmInvestment Bank added that the Malaysian Association of Rubber Glove Manufacturers expects demand for gloves to remain positive for post-Covid-19 as the pandemic has raised awareness of personal hygiene, thus increasing the use of gloves.
According to AmInvestment Bank, the use of gloves in developing countries will increase with the widespread use of gloves from non-medical industries such as food and beverage (F&B), services and retail.
“After this pandemic, we expect structural changes in terms of how gloves are used, forming a new norm where the use of gloves per capita will increase due to stricter hygiene measures.
“This is expected to not only apply to the healthcare sector, but also across different industries such as F&B. The use of gloves per capita in emerging markets such as India and China is still low at about two to six gloves compared to about 100 to 280 gloves for developed countries, ”said AmInvestment Bank.
It maintains a ‘neutral’ recommendation to the sector as an assessment of glove companies under its coverage of Top Glove, Kossan and Hartalega which are fully reflected by the company’s earnings projections.
