Glove demand on the mend

KUALA LUMPUR: Glove demand is on the rise, says the world’s largest glove maker, as it announced encouraging sales growth in the three months period ended Feb 29, 2024.

During the quarter, Top Glove Corp Bhd said its sales volume jumped 18% over the preceding quarter as customers replenished their inventories while it also benefited from trade diversions as Chinese manufacturers were placed on import alert by the US Food and Drug Administration.

In a briefing following the release of its financial results, Top Glove said sales volume will remain robust in March and April 2024 based on the above reasons, which would lift utilisation rates and improve operating efficiency.

“Average selling price (ASP) is also expected to increase from April onwards, as Top Glove passes on the higher costs to buyers,” said Hong Leong Investment Bank (HLIB) Research in its review of the briefing. “As for raw material prices, natural rubber latex (NR) price is expected to ease in May while nitrile butadiene rubber (NBR) prices should soften in June.”

The research firm noted also that Top Glove had recently reopened one of its previously closed plants to meet the rising demand, and has made plans to reactivate two more plants in April and May.

HLIB upgraded Top Glove to “buy” but lowered its target price to 97 sen from RM1 previously, after a weaker-than-expected bottomline in its recent quarter.

The glove maker’s 2QFY24 core loss after tax and minority interest (Latami) came in at RM62mil, which brought 1HFY24 core Latami to about RM121.6mil. In the preceding quarter (1QFY24), the group had recorded a lower Latami of RM59.7mil.

“Despite improving volumes, Top Glove registered wider losses quarter-on-quarter as it was affected by a sharp increase in latex raw material prices as well as ASP reduction – resulting in margin compression,” it said.

However, the research firm sees a buying opportunity for investors as the share price has retraced 10% over the past two months. “We view this as an opportunity for investors to accumulate on weakness, in anticipation of a turnaround expected in FY25f.”

Meanwhile, Kenanga Research is taking a more cautious view of the glove maker’s prospects as it forecast “the current downturn could go down in history as one of the deepest ever”.

“Based on our estimates, the demand-supply situation will only start to head towards equilibrium in 2026 when there is virtually no more new capacity coming onstream while the global demand for gloves continues to rise by 15% per annum underpinned by rising hygiene awareness.”

Kenanga projects glove demand to rise 30% to 390 billion pieces in 2024, which will result in an excess capacity of 212 billion pieces.

“The overcapacity still persists which means low prices and depressed plant utilisation will continue to plague the industry in 2024,” it added.

The research firm maintained its “underperform” recommendation on the stock with an unchanged target price of 75 sen.