The recovery of the Malaysian rubber glove industry remains uneven, as indicated by April's weak export data, according to RHB Research.
This implies that demand has still not caught up to industry expectations of inventory normalising to pre-pandemic levels.
"Nonetheless, the gradual improvement in market dynamics should offer a respite for local glove manufacturers.
"Key downside risks include weaker-than-expected demand dragged by excessive supply capacity and higher-than-expected operating costs," RHB Research said in a note today.
RHB Research has maintained a "Neutral" call on the rubber sector on the expectation of costs normalising by the end of second half of 2023 (2H23), lower gas tariff rates and the implementation of cost pass-through initiatives.
However, the firm said its outlook remains conservative as it has yet to see further clarity on demand for 2023.
It expects the better demand visibility and favourable cost outlook in 2024 to provide some headroom for margin expansion.
"That said, we expect glove makers' profitability to recover year-on-year (YoY) by the end of 2024.
"The consistency of order replenishment and gradual improvement in industry utilisation rates will be key re-rating catalysts for the near term," it said.
RHB Research noted that industry blended average selling price (ASP) stabilised to US$20 to US$21 per 1,000 pieces as ASPs began improving in the first quarter of 2023 (1Q23).
On a positive note, local and regional glove makers are still keen to pass on their cost increases to customers, to ensure their own long-term sustainability.
"The quantum of ASP hikes varies across different players, so we believe that glove makers will not likely raise prices aggressively, as this would lead to them sacrificing sales volume.
"In the meantime, the price gap between Chinese and local glove makers has narrowed to US$3 from US$5 previously," it said.
Source: NST