Glove makers’ earnings have yet to bottom out

KUCHING: The recent round of results reported by glove makers suggested that glove makers’ earnings have yet to bottom out with average selling price (ASP) still hovering above pre-Covid levels, analysts gather in a sector update on rubber gloves.

Based on the results announced by glove players, the research arm of Kenanga Investment Bank Bhd (Kenanga Research observed that players expect ASP to bottom out in another one to two quarters with higher latex ASP (up five per cent) in March 2022 due to higher input raw material cost and oversupply to last between six to nine month.

According to Kenanga Research, glove exporters could also be impacted by logistic challenges caused by the global shipping container shortage of which we understand is unlikely to abate over the next two quarters.

“Some players expects better volume sales ahead as customers are more willing to ‘restock’ given ASP stabilisation and more normalised stock levels,” Kenanga Research gathered.

The research arm also observed that following the uplifting of the US Customs and Border Protection (CBP) ban, Top Glove Corporation Bhd has managed to recover 80 per cent of sales to the US.

“We expect margins in subsequent quarters to be impacted as raw material cost is not adjusting as fast as falling ASP due to competitive pressure and hence earnings could be lower sequentially which depends on the cost-pass through mechanism.”

Kenanga Research went on to highlight that post Covid-19, inventory restocking cycle is expected to spur demand.

“Labour accounts for an estimated 12 per cent of production cost; for illustrative purposes, a 25 per cent increase in minimum wage to RM1,500 is expected to hit players’ production cost by three per cent.

“Based on our back of the envelope calculation, their bottom-line could be mitigated with a 0.2 per cent increase in ASP.”