Stable glove demand seen post-pandemic
TheStar
PETALING JAYA: While demand for gloves will likely remain stable post-Covid-19, the average selling prices (ASPs) of the product are expected to ease in the second half of 2021, according to AmBank Research.
The brokerage said it expects the ASPs to decline by then, as there will no longer be a rush for gloves as compared to what happened at the beginning of the pandemic.
“Nonetheless, we expect ASPs will stabilise at a higher level than the pre-pandemic level due to the broader usage of gloves. Moreover, capacity expansion from glove companies will be able to cope with the future demand, ” AmBank Research wrote in its report.
“We reckon the ASPs will begin to ease after the first half of 2021, following the strong increase over the past nine months, and are already priced in, ” AmBank Research said.
“Moreover, we are cutting our target price-earning ratio by 10% across the board to take into account the risk of a down cycle in the sector as a result of successful rollouts of Covid-19 vaccines, ” it added.
The brokerage said while glove makers’ fundamentals were expected to remain steady for the next few years, these stocks offered limited upside at their current share prices.
Hence, it advised investors to accumulate at lower levels.
Maintaining its “hold” recommendation on all the three glove stocks under its coverage, AmBank ascribed a fair value of RM6.50 for Top Glove, RM12.25 for Hartalega and RM4.80 for Kossan.
Kossan GlovesKossan Gloves
Meanwhile, the brokerage noted that rubber prices had been increasing over the past 12 months as protective glove demand surged due to Covid-19. At the same time, the price of butadiene, which is the key ingredient to produce nitrile, had also been on the rising trend over the past six months.
“Nonetheless, we believe glove makers will be able to pass on the price increase to buyers, thus keeping their margins safe, ” it said.
On glove demand, it cited the Malaysian Rubber Glove Manufacturers Association, which expected the trend to remain positive post-Covid-19.
“The main reason is the pandemic has raised much awareness on personal hygiene, thus resulting in a higher usage of gloves. In developing countries, the usage of gloves is increasing with a wider adoption of usage from non-medical industries such as food and beverage (F&B), services and retail, ” it said.
“Beyond the pandemic, we anticipate a structural change in the way gloves are used, forming a new normal where glove usage per capita will rise as hygiene measures become stricter.
“This is expected to apply not only in the healthcare sector but also across different industries like F&B, ” it added.
https://www.thestar.com.my/business/business-news/2021/01/14/stable-glove-demand-seen-post-pandemic
