KUALA LUMPUR, April 1 — Malaysia is set to stay at the forefront of glove industry following the recent positive outlook by the Malaysia Rubber Glove Manufacturers Association (Margma), which expects the country to retain its position as the world’s number one rubber glove-producing nation in 2022. 

Based on Margma’s projection that Malaysia's export volume will grow at 12 to 15 per cent this year, CGS-CIMB has maintained a "Neutral" call on the sector with Hartalega Holdings Bhd and Kossan Rubber Industries Bhd as the top picks. 

"While we like the sector given the inelastic demand for rubber gloves and strong fundamentals of glove companies, we believe that near-term earnings remain weak while valuations are fair at this juncture," it said in a research note today. 

CGS-CIMB made an "Add" call on Kossan with a target price (TP) of RM2.05 backed by its strong balance sheet and position among the top 10 glove makers globally, and a "Hold" call on Hartalega with TP of RM5.80 as its earnings prospects are likely to remain weak in the near-term with limited upside potential.

"Margma is anticipating the global demand for rubber gloves for the year to be at 452 billion units, or 14,333 gloves used every second, driven by higher demand for medical usage and demand from non-medical sectors such as food and beverage and electronics as these sector will benefit from the lifting of global lockdown measures,” it said. 

The securities firm said the sharp rise in glove demand and average selling prices (ASPs) will support the sector moving forward. Margma expects ASPs to head towards a more normalised level in the first half of 2022, but higher than pre-pandemic levels in 2019. 

According to Margma, ASPs are expected to be 10 to 15 per cent higher than pre-pandemic levels in the long run, due to higher raw material costs, increase in social compliance costs, and higher labour costs.

However, the sector needs to be cautious of the sharper-than-expected fall in glove ASPs, another Covid-19 outbreak among its workers which could lead to production disruptions, and a further spike in raw material prices, it said.

Meanwhile, as the country begins its transition to the Covid-19 endemic phase today, CGS-CIMB believes that Margma is confident of securing new foreign workers going forward, with the reopening of the country’s borders as well as ongoing conversations with government authorities. — Bernama