MAYBANK Securities has upgraded its glove sector rating from “negative” to “positive”, which the research house considers a “contrarian rating”. 

The upgrade comes in view of improving sales volumes and stabilising raw material prices, said Maybank, despite ongoing challenges of stiff competition.

“While sales volume remains volatile with a shorter order lead time as buyers are in no rush to lock in a contract due to excess supply in the glove market, sales volume has improved significantly quarter on quarter among the Malaysian glove makers,” observed analyst Wong Wei Sum in a report on Tuesday (Dec 12).

He foresees plant utilisation rates to grow from the current range of 35 per cent to 40-45 per cent, to more than 35 per cent to 45-50 per cent, leading to lower production costs ahead.

Noting that raw material prices began stabilising after surging in November 2023, Wong is also expecting glove makers’ natural gas costs to come down potentially from mid-2024, after spiking in Q1 2024.

This will cushion the impact on glove makers’ bottom line financials and make pricing more competitive for them, he added.

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With the sector rating upgrade, Maybank has also raised its ratings for rubber glove manufacturers Hartalega and Kossan Rubber Industries to tactical “buy” calls from “hold” previously.

The research house also raised its price target for Hartalega to RM3.02 from RM2.25, and to RM2.12 from RM1.59 for Kossan Rubber.

It maintains its “hold” rating on Top Glove but lifted its target price to RM0.80 from RM0.77 to reflect an improved earnings outlook.

“We believe the stakes in this competitive landscape rest on the hands of China’s glove makers, who wield significant influence due to their more-competitive costing and pricing strategies,” said Wong.

“Having said that, not all purchase orders will necessarily go to China as buyers also implement risk management strategy; some purchase orders should be directed to the other markets, including Malaysia.”