13-05-2025
Glove Sector Recovery Dashed After US-China Tariff Pause
Hong Leong Investment Bank Bhd (HLIB) Research has downgraded the glove sector to NEUTRAL from Overweight, citing rising uncertainty in the global supply-demand balance following tariff adjustments between the United States and China.
The research house maintained a BUY call on Kossan with a lower target price of RM2.30, kept HOLD on Hartalega at RM2.16 and downgraded Top Glove to SELL with a revised target price of RM0.76.
HLIB said the recent agreement between the US and China to temporarily reduce tariffs for 90 days from 14 May 2025 could disrupt the ongoing demand recovery for nitrile gloves. The tariff on most Chinese imports, including medical and surgical rubber gloves and vinyl gloves, will be lowered from 145% to 30%.
This could weaken the shift from vinyl to nitrile gloves which had supported Malaysian players in absorbing excess supply.
Despite the tariff reduction, Chinese nitrile gloves remain less cost-competitive than Malaysian and Thai alternatives. The estimated landed price of Chinese nitrile gloves in the US is expected to drop to US$27 per 1,000 pieces, still above Malaysia's US$17.6 to US$18.7 range.
Vinyl gloves from China, however, will see a sharper drop in landed prices to US$11.7 to US$13 per 1,000 pieces, making them significantly more competitive.
HLIB also flagged structural concerns from China's largest glove maker, Intco Medical. Intco recorded a core profit of RMB1.08 billion in 2024 and increased its production capacity by 8 billion pieces per year. Its capex on glove manufacturing rose to 70% of total growth capex, backed by a strong net cash position of RMB5.8 billion or RM3.6 billion.
These developments signal that Intco is likely to continue expanding despite earlier expectations of a more conservative approach due to geopolitical risks.
The analysts added that Intco has also gained a competitive edge through automation. Its operations reportedly use 50% less labour than Hartalega, one of Malaysia's most efficient producers. With labour costs accounting for up to 15% of cost of goods sold for Malaysian glove makers, this gives Intco an estimated cost advantage of US$1 to US$1.7 per 1,000 pieces even before accounting for lower costs in Southeast Asian countries like Vietnam and Indonesia.
While there remains some hope for Malaysian players if the tariff negotiations between the US and China end unfavourably, HLIB noted that Hartalega has indicated the market may only reach equilibrium beyond 2026. A potential shift in demand from vinyl to nitrile gloves could support this recovery, but the situation remains fluid.
Among the stocks under its coverage, HLIB continues to favour Kossan for its customised product strategy, strong automation and healthy balance sheet with RM1.6 billion in net cash. Meanwhile, the downgrade on Top Glove follows a recent share price rally with analysts adjusting the valuation multiple to reflect the rising risks. Related
