KUALA LUMPUR (Dec 29): RHB Research maintained its "underweight" stance on the rubber glove sector due to the lack of near-term catalysts and expects demand to only pick up the earliest in the second half of 2023 (2H2023).
In a note on Thursday (Dec 29), RHB Research analyst Oong Chun Sung said that industry players are still unable to ascertain the timing of destocking activities from glove distributors at this juncture.
"Under a bull scenario, we expect such distributors' inventory levels to normalise by 1H2023 after taking into consideration the six- to nine-month normalisation period from our last update in September.
"That said, our recent takeaways from the results briefings suggest an absence of restocking activities from the distributor front — as such our assumption for 1H2023 inventory normalisation stands," he said.
Meanwhile, Oong shared that rubber gloves' average selling price (ASP) may have bottomed out, but added that the pace of ASP moderation also continues to ease.
RHB Research maintained its "underweight" stance on the sector due to the persisting imbalances in the sector's demand-supply dynamics as well as elevated costs.
"Although the pace of ASP softness could moderate in the near term post market consolidation, we think suboptimal industry utilisation will continue to be a drag on glove players' margins before we can see a gradual pickup in demand," Oong said, adding that cost pass-through mechanisms also remain challenging for industry players.