KUALA LUMPUR: Despite the challenges facing the glove industry, Kenanga Research believes that the most significant period of earnings downgrades is over.
This optimism is supported by the reduction in cost pressures and the savings generated from decommissioning older plants moving into the second half of 2023.
“In the meantime, any further decommissioning of older production facilities from local players could take more supply pressures off the sector.
“Industry capacity cutbacks should bring back more rational competition and hopefully stop the bleeding of the players,” Kenanga said.
The research house expects the operating environment to continue to remain challenging in subsequent quarters being plagued by massive oversupply.
Nevertheless, it expects the oversupply situation to be less acute and gradually improve following signs of players culling production capacity via decommissioning of selective plants.
Based on Kenanga’s estimates, the demand-supply situation will only start to head towards equilibrium in 2025 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.
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Kenanga noted glove players dipped into their third consecutive quarterly losses in the recently concluded 2QCY23 results season.
“This quarter marked a more stable sequential earnings delivery against our expectations with 25%/25%/50% of results coming above/within/below, which were the same with the preceding quarter.
“Out of the four companies under our coverage, one beat our forecast (Supermax), one came in within (Kossan) and two disappointed (Hartalega and Top Glove),” it said.
Kenanga has target prices of RM1.85 for Hartalega, 75 sen for Top Glove, RM1.28 for Kossan and 80 sen for Supermax.
“We have upgraded our sector rating to ‘neutral’ from ‘underweight’. We upgrade our call for Hartalega, Top Glove, and Kossan to ‘market perform from ‘underperform’,” it said.