What, will there be a Price War? May the force be with you!
The glove manufacturing sector will face major challenges until the first half of next year (1H22) but a strong cash position may help and mitigate the impact of those challenges.
According to Hong Leong Investment Bank (HLIB) analyst Sophie Chua Siu Li, the average selling price (ASP) of gloves has been on a downward trend since mid-2021 following the launch of a massive worldwide vaccination program.
By 1H22, the price of gloves is expected to decline 5% month-on-month (mom) compared to 10% pre-Covid-19 mom previously with the current ASP at US $ 25 or RM105.69 up to US $ 36 per thousand pieces while the pre-pandemic ASP in the US $ 21 per thousand pieces.
Chua explained that the previous surge in demand for gloves had caused the price of nitrile butadiene (NBR) latex to double to US $ 2.40 per kilogram and with the situation going back to the pre-Covid-19 era, demand for gloves is expected to reach US $ 1.10 per kilogram by early 2022. .
In addition, Chua also expressed concern that glove manufacturing margins are expected to be compressed by the outbreak of price wars from Chinese glove makers which continue to gain demand in the market.
In the meantime, Chua said, for now, investors have avoided stocking gloves to avoid locking in purchases at high prices and opined that stockpiling activities will gradually resume in 1H22.
HLIB Research remains ‘neutral’ on the glove sector with the following stock ratings
Top Glove Corp - ‘sell’; target price (TP): RM1.56
Hartalega Holdings Bhd - ‘hold’; TP: RM6.10
Kossan Rubber Industries Bhd - ‘hold’; TP: RM2.65
