Malaysian rubber glove sector "too crowded"
ERJ staff report (TP)
Kuala Lumpur – The top four Malaysian glove makers are fighting for a share of a very crowded market, and some observers think the sector looks less attractive in the near future.
AllianceDBS Research spoke to The Star and contends that “alpha returns” may be elusive for glove stocks.
But, Kenanga Research (KR) believes worries about an oversupply situation are overrated.
KR points to capacity growth by Top Glove Corp Bhd, Kossan Rubber Industries Bhd, Supermax Corp Bhd and Hartalega Holdings Bhd – which will be delayed or staggered.
Kossan’s five billion pieces capacity will gradually be ramped up – a process that began in March this year – for a net increase of 2.5 billion pieces in 2014.
Supermax’s new plant, with an estimated capacity of 5.3 billion pieces, is to start operations by the end of Q2, resulting in a net incremental increase of 2.5 billion pieces.
Top Glove is scaling back and only expects two billion pieces in new capacity to come onstream by end-2014, according to KR.
Hartalega’s Next Generation Integrated Glove Manufacturing Complex, meanwhile, will see commercial production by Q4, with a net incremental increase of two billion pieces.
“If we sum this up, the new capacity is only about nine billion pieces, or 56% of the estimated new global demand of 16 billion pieces,” the brokerage said.
KR sees a buying opportunity in the rubber glove sector ahead of an expected recovery in the coming quarters.
“From our channel checks, demand for nitrile gloves is strong. Players are generally facing full capacity constraints and have had to turn away customers.
“We gather that price competition has abated and expect margins of rubber glove players to remain stable and potentially even expand slightly in subsequent quarters.
“Overall, we believe a glut, and hence, price war in the nitrile segment is less likely, at least in the medium term, due to resilient demand and insufficient supply,” KR said.
PublicInvest Research says that although the perception of oversupply will weigh down on the sector, glove makers are focusing on technological and efficiency improvements rather than just capacity growth.
“If the market were to dissect and categorise each player’s individual strengths, then it would be fairly viewed and not lumped with the stigma of oversupply,” the research outfit said.