KUALA LUMPUR (Sept 20): RHB Research is “neutral” on rubber products due to a lack of demand clarity in 2023 and slower exports.

These factors led the research outfit to trim its 2023 global glove demand assumption to 7% from 5% year-on-year, with a demand target of 371 billion, the research house said in a report on Wednesday.

The lack of demand is evident from Malaysia’s glove exports volume, which contracted for two consecutive months in June and July.

“China’s glove exports lowered by 1% month-on-month in July, versus June’s 11% growth,” RHB Research said, adding that as demand continues to be choppy in the near term, meaningful recovery is expected to only happen by the second half of 2024 (2H2024).

The bank expects to see a 4% growth in demand and a favourable cost outlook in 2024 that will offer headroom for margin improvement.

“That said, we expect glove inventory rationalisation to materialise by 2H2024, which would result in a better margin outlook. We think the consistency of order replenishments and gradual improvements in industry utilisation rates will be key rerating catalysts in the near term,” it added.

RHB Research’s top picks for the sector are Hartalega Holdings Bhd and Kossan Rubber Industries Bhd, as the recovery trend remains to be seen for the glove makers following July’s weaker export numbers.

“This could potentially mean demand is still failing to catch up with industry expectations, as inventory is supposed to normalise to pre-pandemic levels. Nonetheless, the gradual market dynamic improvements should offer respite for local glove manufacturers,” the research firm said.

Key downside risks include weaker-than-expected demand dragged by excessive supply capacity and higher-than-expected operating cost.