Malaysia Glove Makers - Maybank Research 2024-09-16: Christmas Comes Earlier

• We are pleasantly surprised by US’ final USTR modifications on China tariffs, which will raise tariffs on China-made medical and surgical gloves to 50% by 2025 and 100% by 2026 - well above the 25% proposed in May 2024.

A boost to Malaysia glove makers competitiveness

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• Our top BUYs are Hartalega and Kossan Rubber. We Upgrade Top Glove to a tactical BUY.

USTR finalises action on China tariffs

• The United States Trade Representative (USTR) has unexpectedly accelerated and increased tariffs on China-made medical and surgical gloves. The tariff will rise to 50% by 2025 and 100% by 2026, exceeding the 25% by 2026 proposed in May 2024 (vs. current tariff of 7.5%). For e.g., China glove ASP is currently at US$17-18/k pcs.
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An unexpected positive development

• We expect this latest development to make Malaysia gloves more attractive in the US market. This market has been important for Malaysia glove makers (Top Glove: 15% of sales, Hartalega: 50%), which have been losing market share to their Chinese counterparts since 2021 due to intense price competition.
• While there is a risk that China glove makers may shift their focus to the European market (Top Glove: 35% of sales, Hartalega: 25%), we believe Malaysia glove makers could offset the loss of their market share in Europe with stronger sales in the US.

Short-term positive but long term remains uncertain

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Wong Wei Sum CFA Maybank Research | https://www.maybank-ke.com.sg/ 2024-09-16 SGinvestors.io

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