Affin Hwang keeps ‘overweight’ call on glove manufacturers
Concerns over negative news surrounding glove manufacturers, especially on the uncertainty of future average selling prices (ASPs), are expected to ease moving forward, so long as the overall lead time remains around 12 months, Affin Hwang Capital said.
Quoting a report by Frost and Sullivan commissioned by Top Glove Corp Bhd, Affin Hwang said the demand for disposable gloves would likely grow 15 per cent on a compound annual growth rate basis for the next five years, mainly supported by the rise in consumption from the medical segment.
“We concur with their thesis, as we believe that the Covid-19 pandemic would likely change consumption patterns similar to previous pandemics, given the increase awareness of the importance of PPE (personal protective equipment).
“Public policy changes are also inevitable, for example in China, the national health and family planning commission in January last year started to require medical staff to wear disposable gloves when necessary,” it said in a note yesterday.
Affin Hwang said apart from the concern about the uncertainty of future ASPs, the recent development of company-related newsflow had also hampered investor sentiment on the sector.
“Due to Top Glove’s dominant market share, there were concerns as it might be raising fund in anticipation of a weaker outlook.
“Although we are expecting overall supply to increase by 20 per cent per annum over the next few years, demand is also expected to grow by 15 per cent, outpacing historical growth of 8.0-10 per cent per annum.”
Affin Hwang has maintained its “overweight” call on the sector.