KUALA LUMPUR (Sept 11): Malaysian glove stocks extended their gains in early trade on Friday, building on Thursday’s sharp rally as higher selling prices and easing competition from Chinese manufacturers improved the sector’s near-term outlook.
As at 9.55am, Hartalega Holdings Bhd (KL:HARTA) remained the strongest among the major glove makers, rising 6.3%.
Top Glove Corp Bhd (KL:TOPGLOV) gained 4.6%, with 91 million shares changing hands — making it the most actively traded stock in the early session.
Hartalega gained seven sen to RM1.18, Top Glove rose 3.5 sen to 80 sen, Kossan added three sen to RM1.22.
Although Supermax were among four of the most actively traded with 34 million shares done, it edged up only one sen to 44 sen.
The gains came as glove average selling prices (ASPs) started recovering after falling in recent months, with manufacturers moving to pass higher raw material costs on to customers.
According to Maybank Investment Bank’s latest industry checks, ASPs increased to about US$19-US$20 per 1,000 pieces in September from US$18-US$19 in July and August, and could rise further to US$22-US$23 in October.
Maybank said the increases are mainly intended to offset higher input costs rather than expand margins, but the ability to raise prices should cushion manufacturers against rising production costs.
It said downside earnings risks have moderated amid improving pricing dynamics and reduced pricing pressure from Chinese glove makers.
The research house also raised its target price for Hartalega, Kossan and Top Glove although it maintained a 'neutral' view on the sector and cautioned that much of the improved outlook had already been reflected in share prices following Thursday’s rally.
China’s Intco Medical Technology Co Ltd raised glove prices by 15 to 40 yuan per carton from Sept 9 amid higher raw material costs, while higher coal prices in China could further reduce aggressive pricing by Chinese manufacturers.
Malaysian glove makers are also facing a more than 40% increase in natural gas prices from October, making their ability to pass higher costs on to customers a key factor for margins.
On Thursday, Top Glove jumped 21.4%, Hartalega gained 19.4%, Kossan climbed 15.5% and Supermax surged 22.9% as investors piled into the sector on expectations of firmer selling prices.
The rally came as Brent crude traded above US$100 a barrel, raising the cost of nitrile, a key raw material for glove production, while China’s Intco Medical Technology had also raised glove prices.
Maybank said the developments could ease pricing pressure from Chinese manufacturers and give Malaysian glove makers more room to pass higher costs on to customers.