We gathered that all the three glove players under our coverage, namely Top Glove, Hartalega and Kossan Rubber, have depicted positive QoQ trends driven by increased sales volume and lowered raw material costs. However, industry's operational capacity remains suboptimal as Malaysian gloves players are still running at low utilization rates of c.50% or below. Moving into 1HCY24, we anticipate Malaysian gloves players to secure higher orders and sales volume, due to customers’ low inventory levels. However, ASPs are not expected to rise meaningfully, given the prevailing pricing competition from Chinese gloves players. We believe the recent positive movements in share prices are reflective of anticipated earnings improvement. Nonetheless, we remain cautious on the Chinese players which are currently running at near capacity and should they continue to expand, Malaysian gloves players’ market share would be eroded. All told, we upgrade our sector rating on rubber gloves from Underweight to Neutral, as we believe the worst is over with the glove makers returning to the black. We recently raised our call on Hartalega and Kossan from Underperform to Neutral, while maintaining Underperform for Top Glove.
Source: PublicInvest Research - 27 Nov 2023
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