Analysis: Glovemakers still struggling to survive, let alone thrive
KUCHING: Rubber glovemakers were either in the red or reported tepid profits in the fourth quarter of 2023 (4Q23), observed the team with Kenanga Investment Bank Bhd (Kenanga Research).
“There was a slight sequential weakening in earnings delivery (against our expectations) by the sector in the recently concluded 4Q23 reporting season.
“Out of the four companies under our coverage, only one beat our forecast (Kossan Industries Bhd), while two came in within (Hartalega Bhd and Top Glove Corporation Bhd) and one disappointed (Supermax Corporation Bhd).
“The undertone suggests the sector’s recovery path remains bumpy amidst continued weak demand, massive overcapacity and predatory pricing by certain overseas players.”
Despite registering a second consecutive quarterly profit, Kossan and Hartalega’s 4Q23 bottomline was lower quarter on quarter (q-o-q), dragged down by subdued sales volume and sustained high input nitrile butadiene rubber price.
On the other hand, Supermax and Top Glove suffered their fifth and sixth consecutive quarterly losses, respectively, due to sale of high-priced inventory at falling market prices, subdued sales volume coupled with lower overhead absorption on the back of less-than-optimum utilisation rate.
“While some players have returned to the black since 3QCY23, albeit with only some small profits, we believe the sector will continue to face volatile earnings ahead, no thanks to weak demand and stubbornly high nitrile butadiene rubber prices.
“The industry expect volatile quarterly sales order as distributors and buyers sees no urgency to place sizeable orders or hold substantial stocks as supply is plentiful and readily available.
“We expect the operating environment to remain challenging in subsequent quarters, plagued by predatory pricing by certain overseas players and massive oversupply.”
Kenanga Research saw that overall, the industry remains cautious about raising prices (to fully pass on the higher input cost) given the still competitive landscape in the industry.
“This falls in line with our view that raising average selling prices over the immediate term will be challenging. With a low industry utilisation of about 40 per cent, this is without a doubt still a buyer’s market.”