Exponential growth for gloves expected in second half of 2020
KUCHING: The glove sector’s sales volume and average selling price (ASP) has been projected to grow exponentially in the second half of 2020 (2H20) in light of the Covid-19 pandemic.
AmInvestment Bank Bhd (AmInvestment Bank) believed that selling prices will continue to soar in the next six months as lead time stretches up to 12 months.
“The glove companies’ earnings will be further boosted by expanded margins as raw material prices remain low, selling prices continue to grow, US dollar continues to strengthen over the ringgit and expansion plans remain intact for the glove producers,” the research firm said.
“In terms of demand, we expect sales volume and average selling price (ASP) to grow exponentially in 2H20 in light of the Covid-19 pandemic.
“The higher demand has resulted in a shortage of supply, pushing up average selling prices for these medical gloves.
“ASPs are trending upwards and glovemakers now guide for more than five to 15 per cent quarter on quarter (q-o-q) gradual increases while spot selling prices for gloves skyrocketed 100 to 400 per cent in the past few months as panic buying of gloves ensues.”
As such the research firm raised its ASP assumptions for Top Glove Corporation Bhd (Top Glove), Kossan Rubber Industries Bhd (Kossan) and Hartalega Holdings Bhd (Hartalega) in light of the recent spike in Covid-19 cases across the globe.
AmInvestment Bank has assumed an FY21F ASP of US$35 for Top Glove and US$32 for Hartalega. Top Glove’s and Hartalega’s FY22F assumptions were also increased to US$25 and
US$30, respectively.
For Kossan, the research firm assumed a higher ASP of US$28 for FY20F and FY21F.
“We think that glove ASP will continue to grow in 2H20 and be sustained even in 1H21 as lead time continues to hover at 12 months.”
According to AmInvestment Bank, total rubber glove export value from Malaysia grew 21.4 per cent year on year (y-o-y) to RM6,868 billion in January to April 2020.
“We think that the trend will continue well into 2021 until a Covid-19 vaccine is available to the masses. In the meantime, usage of rubber gloves will remain a priority not only in the medical sector but across various industries.
Beyond the Covid-19 pandemic, the research firm anticipated a structural change in the way gloves are used, forming a new normal where glove usage per capita will increase as hygiene measures become stricter.
“This is expected to apply not only in the healthcare sector but also across different industries like food and beverage (F&B).
“The glove consumption per capita in emerging markets such as India and China is low at around two to six gloves as opposed to circa 100 to 280 gloves for developed countries.”
Having said that, AmInvestment Bank opined that rubber glove’s ASP will face a downward pressure in year 2022F (assuming full containment of Covid-19) due to lower urgency of orders with higher supply of gloves from expanded capacity.
The research firm recapped that big glove producers Top Glove, Kossan, Hartalega, Supermax Corporation Bhd and Sri Trang have plans to increase capacity by 16 per cent in 2020E, 11 per cent in 2021F and 10 per cent in 2022F.
It noted that this will add 74.6 billion pieces (up 40 per cent) of capacity by end-2022.
“Although this bodes well in terms of ability to cater to higher volume of orders for the next one to 1.5 years we think that shortterm supply glut will come back into play in 2022F.”
Looking ahead, AmInvestment Bank’s house projection for the US dollar-ringgit rate is an average of RM4.29 in 2020 and RM4.25 in 2021.