Rubber Gloves Sector - CGS-CIMB Research 2022-04-01: Malaysia To Stay At Forefront Of Glove Industry

Rubber Gloves Sector - Malaysia To Stay At Forefront Of Glove Industry

  • The Malaysia Rubber Glove Manufacturers Association (MARGMA) expects global glove demand (volume) to reach 452bn pieces in 2022F, growing by 12-15% y-o-y. In addition to higher demand for medical usage (better healthcare awareness post COVID-19), this will be driven by demand from non-medical sectors (F&B, electronics, etc.) as they benefit from the lifting of global lockdown measures.
  • Malaysia was estimated to be the largest glove producing country with 65% global market share in 2021, followed by China (20%), Thailand (10%), Indonesia (3%) and others (2%).
  • MARGMA is confident that Malaysia will retain its leadership position given its:
    1. strong R&D efforts,
    2. proven track record over the years and
    3. competitive pricing.

ASP will normalise but higher than pre-pandemic levels

  • MARGMA expects average selling prices (ASPs) to head towards a more normalised level in 1H22F (but higher than pre-pandemic levels in 2019 of US$21-23 per 1k pieces). This is on the back of slower buying patterns from glove customers (due to stocking up activities during peak of COVID-19) and more supply-led dynamics in the industry.
  • Still, MARGMA expects ASPs to be 10-15% higher than pre-pandemic levels in the long run, due to:
    1. higher raw material costs,
    2. increase in social compliance costs and
    3. higher labour costs.

Improved efforts in solving social compliance issues

  • MARGMA started to address these issues in Dec 18 and reiterated its commitment to solve social compliance issues in the glove sector. It is currently working with both government agencies and international organisations to develop better standards and guidelines for its members. According to MARGMA, its members have spent RM400m-450m in remediation fees since 2019.
  • With regards to social compliance issues, MARGMA is focusing on:
    1. remediation fees to free foreign workers from debt,
    2. upgrading hostels for local foreign workers (in accordance with Act 46),
    3. minimum wage to improve standards of living for workers,
    4. advocating for its members to participate in the SEDEX and SMETA Audit Programme for Social Compliance and
    5. self-regulation via a code of conduct.

MARGMA is supportive of RM1,500/month minimum wage policy

  • MARGMA is supportive of the RM1,500/month minimum wage announced by the government (a 25% increase from RM1,200/month) effective 1 May 2022. The 25% increase in minimum wage is expected to raise (on average) glove makers’ production costs by 1.4-2.8% (depending on the size and location of the factory).
  • Also, MARGMA highlighted that it is in dire need of foreign labour, with at least a 22,000 shortage of foreign workers in the industry. We understand that MARGMA is confident of securing new foreign workers going forward, with the reopening of country borders as well as ongoing conversations with government authorities.

Retain sector Neutral with Hartalega and Kossan as our top picks

  • We maintain our Neutral call on the glove sector. While we like the sector given the inelastic demand for rubber gloves and strong fundamentals of glove companies (all in a net cash position), we believe that near-term earnings remain weak while valuations are fair at this juncture (near the sector’s 5-year mean before 2020, i.e. pre-COVID-19).
  • Among the stocks under our coverage, we have
    • an ADD call on Kossan on valuation grounds,
    • a HOLD call on Hartalega, and
    • REDUCE calls on Supermax and Top Glove (SGX:BVA).
  • Upside risks: sharp rise in glove demand and/or ASPs.
  • Downside risk: sharper-than-expected fall in glove ASPs.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @

Walter AW CGS-CIMB Research | 2022-04-01
SGX Stock Analyst Report REDUCE MAINTAIN REDUCE 0.420 SAME 0.420

Read also CGS-CIMB's most recent report:
2022-09-20 Top Glove - Tough Times Remain Ahead

Target prices by 3 other brokers at Top Glove Target Prices.
Listing of broker reports at Top Glove Analyst Report.

Relevant links:
Top Glove Share Price History,
Top Glove Announcements,
Top Glove Dividends & Corp Actions,
Top Glove News Articles


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