KUALA LUMPUR (March 7): Kenanga Research has maintained its “underweight” rating on the glove sector and said players either were in the red or reported tepid profits in the fourth quarter of calendar year 2023 (4QCY2023), with only one beating house expectation.

In a sector update on Thursday, the research house said the undertone suggests the sector’s recovery path remains bumpy amid continued weak demand, massive overcapacity and predatory pricing by certain overseas players.

However, on a slightly brighter note, it said further decommissioning of older production facilities locally should help to ease supply pressure, at least bringing about more rational competition among local players.

“Following a premature run-up in their share prices, we avoid all names under our coverage, namely Hartalega Holdings Bhd ('underperform' (UP); TP [target price]: RM2.33), Kossan Rubber Industries Bhd ('UP'; TP: RM1.48), Supermax Corp Bhd ('UP'; TP: RM0.84) and Top Glove Corp Bhd ('UP'; TP: RM0.75),” it said.

Kenanga said based on its estimates, the demand-supply situation will only start to head towards equilibrium in calendar year 2026 (CY2026) when there is virtually no more new capacity coming onstream while the global demand for gloves continues to rise by 15% per annum underpinned by rising hygiene awareness.

The research house projected the demand for gloves to rise by 30% in CY2024 to 390 billion pieces (due to a low base effect in CY2023) and resume its organic growth of 15% thereafter.

“This will result in an excess capacity of 212 billion pieces in CY2024. The overcapacity still persists which means low prices and depressed plant utilisation will continue to plague the industry in CY2024.

“Our CY2024 forecasts assume: (i) an ASP (average selling price) per 1,000 pieces of US$20 similar to CY2023, and (ii) an average plant utilisation of 45% versus an estimated 40% in CY2023. In the meantime, we do not have any top pick for the sector,” it said.