KUALA LUMPUR (Dec 9): Glove manufacturers, still grappling with supply glut and intense competition, are now staring at prospects of the stronger ringgit dragging on its export receipts, BIMB Securities said.

In the current tight margin environment, glove producers have little room to raise their selling prices to offset the currency movements, the research house said in a sector note. Investors of glove stocks also tend to react to currency fluctuations ahead of earnings, the research house flagged.

“… even a modest MYR strength can exert immediate valuation pressure, driven mainly by sentiment and the mechanical translation of USD revenue into ringgit, rather than any substantial change in underlying profitability,” BIMB Securities warned.

Shares of Malaysia’s top glove manufacturers, including Top Glove Corporation Bhd (KL:TOPGLOV) and Hartalega Holdings Bhd (KL:HARTA), have lost more than half of their value this year. Analysts have warned that they may not be out of the woods despite some tentative signs of recovery.

The industry is grappling with a massive supply glut as rivals from China set up shop and ramp up their productions in other Southeast Asian countries to dodge US tariffs. A deluge of Chinese-made gloves in non-American markets has also added to the pressure faced by Malaysian manufacturers.

The ringgit has gained nearly 9% year to date against the US dollar. The consensus in a Bloomberg survey of more than a dozen currency strategists is for the local currency to appreciate further against the greenback through 2026.

Sales of gloves are almost entirely quoted in US dollars while only 80% of manufacturers’ total costs are in the greenback, resulting in lower export receipts with the rise in the ringgit, BIMB Securities noted.

“This translation impact may be minimal in absolute terms, but its significance rises when producers are already operating in a margin-compressed environment,” the research house said.

BIMB Securities’ analysis shows that a mild appreciation of 3% to 5% should remain “manageable” with earnings before interest, tax, depreciation and amortisation taking an impact of between 0.8% and 4.7%.

However, an appreciation of 8%-10% in the ringgit would “meaningfully reduce” revenue, “potentially outpacing the benefit of natural hedges and forcing producers to absorb margin compression”, the research house added.