An Increase of Demand Rubber Gloves will be a Super Normal for the Next Few Years

Last updated on May 7th, 2021 at 05:24 am

Acute supply and supernormal rubber glove demand could persist in the next two years. Analyst, Raymond Choo Ping Khoon said glove makers issued new customer orders from airlines , hotels, retail apparel chains and hotel operators. When we look at the single capacity expansion figures, it seems daunting. Juxtaposed with annual growth in demand and new pandemic-led demand, the increased capacity is not a worry.

He said the estimated new annual capacity may not actually start as scheduled and consequently the supply shortage will remain acute in 2021. On average, Choo said glove makers required two to three plants annually to meet the supernormal demand, which takes 12 to 24 months to complete.

We assume that the average tightness of the selling price (ASP) will continue until 2021. We point out that reports of a player in China ramping up capacity by 30 billion pieces over two to three years seem ridiculous, usually taking eight to ten years to construct,” he said.

Choo noted that in the last few days, Top Glove Corp Bhd stock has veen down 15 per cent. On average, Choo said glove makers required two to three plants annually to meet the supernormal demand, which takes 12 to 24 months to complete.

They assume that the average tightness of the selling price (ASP) will continue until 2021. We point out that reports of a player in China ramping up capacity by 30 billion pieces over two to three years seem ridiculous, usually taking eight to ten years to construct.

Choo noted that in the last few days, Top Glove Corp Bhd stock has veen down 15 per cent.

It was attributed to the perceived ill-treatment of foreign employees, concerns of over-supply, and windfall tax rumors that Kenanga Research claims were largely overplayed. The stock currently trades at a slightly above-average undemanding price-earnings-ratio at 21 times compared to earnings growth of an average of 130 per cent for the 2020 (FY20) and 2021 (FY21) financial year.

Kenanga Research retained the target price of RM25 per share for Top Glove and affirmed a ‘outperform’ call on the company.

Because of the pandemic and solid earnings growth averaging 130 per annum for FY20 and FY21 the firm said strong management, booming gloves industry will help the bid for Top Glove.

A main risk to its call, however, involves lower volume sales and ASP than anticipated. They highlighted that Top Glove’s ASP is 15 per cent higher month-on – month for months from June to August, suggesting tightness of supply.

They also expect Top Glove, with a large consumer base, to have greater negotiating power and therefore potentially higher than anticipated industry average prices.

Top Glove recently found out that 20 per cent of its new capacity will be spot-priced, between US$ 80 and US$ 100 for 1,000 parts.