Glove Manufacturing Sector - UOB Kay Hian 2023-03-21: Upgrade To OVERWEIGHT As Bottom Has Been Sighted

• Glove manufacturing sector fell into unprecedented losses in 4Q22. Sector losses are expected to continue but bottom out in 1H23. Alongside improving ASP outlook and moderating costs, corporate losses should be narrow in 2H23.
• Meanwhile, valuations are trading close to +1 standard deviation to merely recovering 2024 earnings, suggesting deep value when 2025 earnings are taken into perspective.
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Worst is over for gloves ASPs?

• Over the recent quarter, the Malaysia glove producers indicated an ASP revision heading into 2Q23. Top Glove (SGX:BVA) is looking at an ASP in the region of US$21/’000 pieces or a >20% hike. This is against the backdrop of unsustainable ASPs with producers operating at a loss, rising input cost (energy, wage cost and raw material prices) and depleting customers’ inventory levels.
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Inflection point in 2H23?

• The potential narrowing of ASP differential between glove producers in Malaysia to those in China and Thailand (Sri Trang Gloves (SGX:STG)) in 2H23 could be an inflection point to volume demand shifting back to Malaysia. The Malaysia glove producers’ utilisation rates are close to 40% vis-à-vis 50-60% of their regional peers.
• Apart from the shift in demand, utilisation rates should improve from an overall gradual recovery in demand from the diminishing excess inventory and industry consolidation.

Excess inventory.

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Philip Wong UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-03-21 SGinvestors.io

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