KUALA LUMPUR, 13 Jan 2021:
AmInvestment Bank Bhd foresees the average selling prices (ASP) for rubber gloves to decline as there is no longer a rush for gloves – compared to what happened at the beginning of the pandemic.
Nonetheless, it expects the ASP will stabilise at a higher level than the pre-pandemic level – due to the broader usage of gloves. Moreover, capacity expansion from glove companies will be able to cope with future demand.
“We reckon the ASP will begin to ease after 1H2021 following the strong increase over the past nine months, and are already priced in.
“Moreover, we are cutting our target price-to-earnings ratio by 10% across the board to take into account the risk of a down cycle in the sector as a result of successful rollouts of Covid-19 vaccines,” it said in a note today.
While it believes glove makers’ fundamentals remain steady for the next few years, the investment bank said they offer limited upside at their current share prices. Hence, it advises investors to accumulate at lower levels.
It said the Malaysian Rubber Glove Manufacturers Association expects demand for gloves to remain positive post-Covid-19 and the main reason is the pandemic has raised much awareness on personal hygiene – thus, resulting in a higher usage of gloves.
AmInvestment Bank said the usage of gloves in developing countries is increasing with a wider adoption of gloves utilisation from non-medical industries such as food and beverage (F&B), services and retail.
“Beyond the pandemic, we anticipate a structural change in the way gloves are used, forming a new normal where glove usage per capita will rise as hygiene measures become stricter.
“This is expected to apply not only in the healthcare sector but also across different industries like F&B. The glove consumption per capita in emerging markets such as India and China is still low at around two to six gloves as opposed to about 100 to 280 gloves for developed countries.”
It maintains a “neutral” view on the sector as valuations for glove companies under its coverage (Top Glove, Kossan and Hartalega) are already fully reflected in the companies’ earnings outlook.