Top Glove is expected to record improvements in its performance starting from 4Q19 onwards, driven by the recovery in demand. — Reuters photo
KUCHING: Top Glove Corporation Bhd (Top Glove) is expected to record improvements in its performance starting from the fourth quarter of 2019 (4Q19) onwards.
“We believe that Malaysian manufacturers will start gaining market share in the coming months as the 15 per cent tariff on Chinese gloves was implemented since September 2019.
“We believe that sentiments on the sector would improve as the recovery in demand starts to be reflected in the manufacturers books starting with their 4Q19 results,” Affin Hwang Investment Bank Bhd’s research team (AffinHwang Capital) said in a report.
However, it pointed out that there are concerns over rising competition from Thailand, given that Sri Trang Gloves (SRI) is aggressively building capacity as they prepare for an IPO in 3Q20.
It believed that SRI is unlikely to cut prices further to compete for market share gains as their new capacity would only be ready by the second half of 2020 (2H20).
“Rubber glove manufacturers with significant exposure in the latex glove segment such as Top Glove, were impacted by the price pressure,” it added.
Meanwhile, it noted that despite the significant gain in market share (sales volume) by the Chinese manufacturers for glove sales to the US (which has risen from 10.2 per cent in 2018 to 14.2 per cent in September 2019), Malaysia still remained the market leader with a 74.2 per cent share.
“The gain in market share has nevertheless impacted the overall demand from Malaysian manufacturers like Top Glove, as overall glove imports from the US only grew by one per cent year-on-year (y-o-y) for the first nine months in 2019,” it added.
Overall, AffinHwang Capital upgraded its call on the stock to ‘buy’ based on its expectations of better quarters ahead for Top Glove, driven by improving demand for Malaysian rubber gloves.