Glovemakers rally as US plans higher tariffs on Chinese gloves
September 17, 2024
KUALA LUMPUR: Rubber glove stocks emerged as both top gainers and among the most active on Bursa Malaysia in early Tuesday trade after the US announced it would raise tariffs on Chinese gloves.
Last Friday, the United States Trade Representative (USTR) announced plans to increase the tariff on Chinese medical and surgical gloves from the current 7.5% to 50% starting in January next year, with a further increase to 100% by January 2026.
Shares in Hartalega surged 26.45%, or 64 sen to RM3.06 with 31.99 million shares traded at 10.12 am. It has risen about 12% this year.
Top Glove Corp Bhd , the world’s biggest glove manufacturer, jumped 18.03%, or 16.5 sen to RM1.08 with 85.98 million shares traded. Its share price has risen over 14% so far this year.
Careplus Group Bhd added 13.46%, or 3.5 sen to 29.5 sen with 37.91 million shares done while Kossan Rubber Industries Bhd rose 15.85%, or 29 sen to RM2.12 with 16.93 million shares traded.
Supermax Corp Bhd gained 10.5 sen, or 13.29% to 89.5 sen with 28.82 million shares done.
Hong Leong Investment Bank (HLIB) Research stated that its analysis indicates the event will lead to a surge in volume and average selling prices (ASP) for Malaysian glove makers from US glove distributors in 4QCY24-1QCY25. However, it may not have a significant incremental impact on the 2026 forecast.
“This will benefit most Malaysian players, albeit biased towards Hartalega and Kossan. We maintain our earnings forecasts in FY24f-27f for Hartalega and Kossan as we conservatively believe that the higher-than-expected demand/ASP in 4QCY24f-1QCY25f could be partially offset by recent and potential forex volatility,” it said.
“With the recent share price weakness and positive development from USTR, we believe that the risk-reward ratio has once again become favourable and the glove sector could regain market interest,” it added.
The research house upgraded the sector’s rating to “overweight” from “neutral” and maintained a “buy” rating on Hartalega and Kossan with unchanged target prices of RM3.62 and RM3.00 respectively.
Kenanga Research has also upgraded the sector to “overweight” from “underweight” following a recent retracement in share prices, coupled with improvement in fundamentals, and tariffs on China glovemakers that ratcheted up last week with brought-forward timeline.
The research house indicated that signs are pointing towards a strong demand recovery in the second half of CY24 and CY25, surpassing previously assumed levels. This anticipated recovery is supported by inventory rebuilding from distributors and faster-than-expected industry consolidation.
“We expect glove stock prices to re-rate in anticipation of a near-term
earnings upsurge. Moreover, tell-tale signs of predatory pricing by certain overseas players (i.e. selling below cost over an extended period to eliminate competition) have diminished as Chinese players’ utilisation hit rates hit over 90%,” it said.
Kenanga has upgraded Hartalega and Kossan to “outperform” with target prices of RM3.20 and RM2.60, respectively, due to their significant US sales exposure.
Top Glove and Supermax are given a “market perform” rating, with target prices of RM0.97 and RM0.83, respectively.
