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Global demand for gloves still on uptrend

PETALING JAYA: Global glove supplies are expected to grow between 15% and 25% annually over the next two to three years, on the back of higher usage and increased healthcare awareness.

Despite glovemakers’ aggressive expansion plans to capture the demand growth, CGS-CIMB Research said global supply growth over the next two-to-three years would likely still not catch up with the increase in demand.

“This assumes that there would be no supply disruptions due to unforeseen circumstances or delays in expansion plans, such as construction delays and raw material supply constraints.”

Hong Leong Investment Bank (HLIB) Research said requests from customers have not been decreasing or slowing down despite the positive inflow of vaccine news.

“Rather, the actual demand and supply for gloves would be dependent on when the vaccine is ready for mass immunisation. Hartalega Holdings Bhd shared that its pandemic allocation is taken up until October 2021, with spot orders remaining between 7% and 10% of total capacity.

“While Kossan Rubber Industries Bhd shared its current lead time is 15 months. Also, its major customers have locked in orders up till the end of 2021. Current spot orders for Kossan accounts for 15% of total volume, with the incoming capacity to be focused to supply spot orders.”

The research house said spot order average selling prices (ASP) are now above US$90 (RM365) per 1,000 pieces.

“Overall, management remains upbeat on its earnings prospects at least until the first half of 2021 with a possible softening in the second half of 2021.”

CGS-CIMB expected glovemakers to continue recording stronger quarters, backed by higher ASPs, increase in production capacity and higher economies of scale.

“Note that we have assumed ASP will continue on an uptrend to only the first quarter of 2021, hitting a conservative average of US$60 (RM243) per 1,000 pieces of gloves in that quarter.”

Additionally, CGS-CIMB said it is maintaining its “overweight” call on the glove sector.

“While our top picks in the sector are currently Hartalega and Top Glove Corp Bhd, we also have added calls on Supermax Corp Bhd and Kossan. We continue to like the sector given its strong earnings prospects, as it is a key beneficiary of the robust global glove demand owing to Covid-19.

“Potential re-rating catalysts include a surge in ASP and stronger-than-expected global glove demand. Downside risks include a sharp decline in ASP and lower-than-expected demand for gloves.”

HLIB is also maintaining its “overweight” call on the sector.

“Share price of glove players have seen weakness of late, largely due to vaccine development news flow. However, at current depressed valuations, we reckon that these negatives have been priced in.

“With the global Covid count still chalking new daily highs, we think the risk-to-reward ratio seems favourable at current levels.”


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