Maybank IB: Glove makers' ASP, earnings outlook remains challenging

Maybank IB: Glove makers' ASP, earnings outlook remains challenging
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KUALA LUMPUR (July 6): The average selling price (ASP) and earnings outlook for local glove makers remains challenging as US President Joe Biden is reportedly considering reducing import tariffs on Chinese goods, said Maybank Investment Bank (Maybank IB).

It said there is a high chance that the cost-plus model widely used pre-Covid-19 might no longer be relevant amid stiff competition, adding that losses are likely if the price war escalates. 

“We do not think that this is the time for bottom-fishing glove stocks just yet, hence we maintain our negative stance on the sector,” said Maybank IB in a research note on Wednesday (July 6).

According to news reports, Biden may announce a rollback of some tariffs on Chinese consumer goods as soon as this week to counter accelerating inflation in the US.

The investment bank opined that the potential tariff removal for Chinese consumer goods — including gloves — would be a negative event for Malaysian glove makers. 

“Being one of the essential items [amid the Covid-19 pandemic and rising Monkeypox cases], and given the insignificant involvement of US companies in glove manufacturing, there is a high chance that there will be a removal of import tariffs on China-made gloves,” said Maybank IB.  

To expand their market share, Chinese glove makers have been selling at lower prices and absorbing the tariffs for their clients, even when they are currently being taxed at 7.5%.

“Without the import tariffs, there will be more room for Chinese glove makers to adjust their pricing and that could lead to further cut in ASPs.

“We were told that Chinese glove makers are currently selling below US$20 (about RM88.49) per thousand pieces, compared to Malaysian makers at around US$22 to US$24 per thousand pieces,” said Maybank IB.

At the close on Wednesday, Kossan Rubber Industries Bhd closed unchanged at RM1.26, Rubberex Corp (M) Bhd was flat at 50.5 sen, Top Glove Corp Bhd was half a sen or 0.53% lower at 94 sen, Supermax Corp Bhd closed down one sen or 1.22% at 81 sen, and Hartalega Holdings Bhd settled six sen or 2.21% lower at RM2.66.