KUALA LUMPUR (April 2): Phillip Capital has initiated coverage on the Malaysian rubber glove sector with an “overweight” rating and said the supply-demand dynamics for the glove market are expected to further recover in 2024.

In a sector update on Tuesday, the research house said demand is expected to pick up on re-stocking activities following past two years of inventory adjustments.

It said average selling price (ASP) has stabilised and is likely to trend higher on a more balanced market.

“For sector top picks, we have ‘buys’ on Hartalega Holdings Bhd (TP [target price]: RM3.35) and Kossan Rubber Industries Bhd (TP: RM2.35).

“We like both for [their] more efficient cost structure and strong balance sheet with high cash level.

“We have a ‘sell’ rating on Top Glove Corp Bhd (TP: 60 sen) on near-term earnings turnaround uncertainty due to a less efficient cost base,” it said.

Phillip Capital said it sees the current sector recovery as sustainable and driven by a more favourable market dynamic.

“The decommissioning of inefficient production lines by Hartalega, Top Glove, and Kossan has helped reduce the global capacity.

“We believe the re-stocking activities will sustain over 2024/25, with global demand expected to recover to 329 billion/368 billion (up 15%/12% year-on-year), respectively.

“Our current projection shows Hartalega, Kossan and Top Glove utilisation rates are expected to recover to 80%/62%/36% (from 46%/50%/30%) in CY2024 (calendar year 2024) with Chinese glovemakers operating at near full capacity,” it said.