RHB Underweight On Glove Sector Amid Mixed 3Q Results

RHB Research has maintained its UNDERWEIGHT rating on the Malaysian glove sector following a disappointing third-quarter earnings season, highlighting intensified price competition and uneven volume recoveries among local manufacturers.

According to the report, industry-blended average selling prices (ASPs) fell to USD21.30 per 1,000 pieces, as producers faced challenges in passing on costs amid softening raw material prices. Of the six rubber product companies under coverage, only Top Glove exceeded expectations, while Hartalega reported in-line results, and the remaining manufacturers fell short.

RHB noted key trends in the quarter, including uneven volume recoveries, a shift in sales mix away from the US market, and widening ASP divergence due to differing operating strategies. On a positive note, sequential improvements in EBIT per carton were observed, supported by operational efficiencies and lower input costs.

The report also flagged potential pressures ahead for generic healthcare gloves, with management commentary indicating further ASP declines, partly due to incremental supply from China-based manufacturers with offshore operations and newly commissioned Indonesian capacities. Cost headwinds are expected to increase, driven by:

Mandatory Employees Provident Fund (EPF) contributions for foreign workers from October 2025, raising production costs by approximately 0.1% per 1,000 pieces.

Multi-tier levy mechanism (MLTM) on foreign workers, rolling out in 2026, potentially adding 0.4–0.5% to production costs.

Despite structural challenges, RHB highlighted tactical opportunities, switching its call on Supermax (SUCB MK, TP: MYR0.43) to TRADING BUY from Sell, citing an inflection in operating cash flow (OCF) and a net cash position of MYR691 million, representing over 57% of its market capitalization.

RHB warned that upside risks to the sector rating include a stronger USD/MYR, rising glove ASPs, slower-than-expected capacity expansion, and lower raw material prices.

The research house concluded that while the sector’s valuation appears inexpensive at 0.9x 12-month forward P/BV, persistent structural headwinds justify a cautious stance.

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