KUALA LUMPUR (April 30): RHB Investment Bank Research has maintained its “overweight” rating on the rubber products sector and said it expects glove makers to record positive quarter-on-quarter (q-o-q) net profit growth in the upcoming March quarterly reporting season.

In a sector update on Tuesday, the research house said this is predicated on the pick-up in export value (1Q2024: +10%) as well as a stabilised average selling price (US$20 per 1,000 pieces) offset against 6% contraction in volume.

“We expect operating costs to inch up higher in 1Q24, taking into account the latest gas tariff review (+4-5% in January), cost escalations of natural rubber and acrylonitrile prices (+24% and +0.7% QoQ) offset against the strengthening of US dollar against ringgit (+0.5%).

Top Glove to continue registering losses

“That said, we expect Top Glove Corp Bhd to continue registering losses for its May reporting quarter given it has the highest exposure in the natural latex glove segment,” it said.

Moving forward, RHB said it expects sales volume to pick up sequentially in view of a more balanced demand-supply dynamic by 2H2024, which in turn should lead to an improvement in glove makers’ profitability.

It said with the industry’s excess capacity gradually phasing out, demand-supply equilibrium is expected to be achieved by end-2024.

“We also expect price competition risk from Chinese peers to gradually subside, premised on: i) Quality concerns resulting in higher rejection rates from the US Food & Drug Administration (FDA), and ii) Chinese players’ pivoting stance towards sustainability.

“Our sector top picks are Riverstone Resources Bhd, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd.

“Key risks: Decrease in gloves ASP, slower-than-expected demand recovery, lower-than-expected utilisation rate, higher-than-expected raw material price,” it said.