Kenanga Research has maintained its “neutral” rating on the glove sector and said it believes the worst is over in terms of earnings downgrades for the sector, underpinned by easing cost pressures and savings emanating from decommissioning of older plants moving into the second half of calendar year 2023 (2HCY2023).
In a sector update on Tuesday, the research house said that in the meantime, any further decommissioning of older production facilities by local players could take more supply pressures off the sector.
It said industry capacity cutbacks should bring back more rational competition and hopefully stop the bleeding of the players.
“Our ratings are as follows: Hartalega Holdings Bhd (MP [market perform]; TP [target price]: RM1.85), Top Glove Corp Bhd (MP; TP: RM0.75), Kossan Rubber Industries Bhd (MP; TP: RM1.28) and Supermax Corp Bhd (MP; TP: RM0.85),” it said.
Kenanga said it expects the operating environment to continue to remain challenging in subsequent quarters being plagued by massive oversupply.
“Nevertheless, we expect the oversupply situation to be less acute and gradually improve following signs of players culling production capacity via decommissioning of selective plants.
“Based on our estimates, the demand-supply situation will only start to head towards equilibrium in 2025 when there is virtually no more new capacity coming on stream while the global demand for gloves continues to rise by 15% per annum underpinned by rising hygiene awareness,” it said.
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