KUALA LUMPUR (July 4): PublicInvest Research is underweight on the glove sector and has maintained its “underperform” call on all three glove stocks under its coverage.

In a note on Tuesday (July 4), the research house said all the three glove players under its coverage, namely Top Glove Corp Bhd, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd had recently taken steps to slash their annual installed capacities by decommissioning outdated facilities.

However, PublicInvest continues to believe that the industry’s overall utilisation rates will remain below breakeven levels due to weaker global demand for gloves.

“Moving into 2HCY2023, we are not expecting a meaningful turnaround in profitability.

Losses should persist on the back of pricing pressure from China, muted demand as well as elevated electricity and labour costs,” it said.

The research house said recent results reported by the glove players under its coverage suggested that the sector is still facing headwinds.

“Kossan and Top Glove remained in the red while Hartalega reported a 96% drop in core net profit after adjusting for one-off impairment losses from the decommissioning of its Bestari Jaya facility.

“All the players were still running at low utilisation rate due to prolonged gloves oversupply situation with customers’ resistance against ASP hike,” it said.

PublicInvest said the move in shaving off production capacity should help to ease the prevailing excess capacity condition in the market.

“Despite this, we are not expecting the Malaysian producers to achieve breakeven level anytime soon as utilisation rates should remain low (at around 50% or below) due to the weak global demand.

“Customers are still reluctant to place sizable orders as they are able to receive their deliveries in a shorter time period.

“However, we note that the discontinuation of older facilities should lead to lower operating cost and hence, help to ease the pressure of escalating costs in the near term,” it said.

Lacklustre earnings

Top Glove, the world's largest glove manufacturer, saw its net loss narrow to RM130.59 million for the third financial quarter ended May 31, 2023 (3QFY2023), from RM164.67 million for 2QFY2023, driven by increased average selling prices (ASPs) and ongoing cost optimisation measures.

This marked its fourth straight quarterly loss.

Revenue for 3QFY2023 dropped 14.1% quarter-on-quarter (q-o-q) to RM530.62 million, from RM618 million previously.  

Elsewhere, Hartalega reported a large quarterly net loss of RM302.75 million and a big drop in revenue for the fourth quarter ended March 31, 2023.

The glove maker incurred a massive impairment of RM347 million as a result of the decommissioning of its plant in Bestari Jaya, with the one-off impairment dragging Hartalega into the red. Meanwhile, its quarterly revenue plunged 46.7% to RM515.74 million from RM968.69 million a year prior.

Meanwhile, Kossan posted a net loss of RM24.25 million for the first quarter ended March 31, 2023 (1QFY2023), versus a net profit of RM90.1 million a year ago, mainly due to losses from its gloves division.

The glove manufacturer posted a loss per share of 0.95 sen versus earnings per share of 3.53 sen previously, according to its bourse filing.

Quarterly revenue declined 42.54% to RM394.71 million, from RM687.01 million in 1QFY2022, amid lower revenues at the gloves and clean-room divisions.