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Telegram游戏群(www.tel8.vip):Recent glove stock rally not expected to sustain

Telegram游戏群(www.tel8.vip):Recent glove stock rally not expected to sustain

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PETALING JAYA: While Covid-19 cases may surge with the re-opening of China’s borders, this may not lead to significant improvements in earnings of glove makers due to their plant utilisation rate which may stay low.

Maybank Investment Bank’s (Maybank IB) research unit said this in a glove sector report to clients entitled Daunting Outlook, adding that any increase in orders could be easily absorbed due to the current low utilisation rates.

“We maintain our ‘negative’ stance on the glove sector and our view that the recent rally in glove stocks will not sustain.

“Stock prices will eventually converge to fundamentals,” the research house added.

In the report, it pointed out that sentiment on glove stocks had turned positive lately in anticipation of surging Covid cases with the re-opening of China borders.

“Nevertheless, the rally may not sustain as the re-opening may not result in an upsurge of Covid cases, and hence, the demand for gloves, as herd immunity and the growing list of countries imposing Covid rules on Chinese arrivals may help to curb the spread of Covid cases.”

Maybank IB also said the availability of vaccine boosters, government hospitals’ glove inventory remaining high and most importantly the ability of any increase in glove demand being well absorbed as the industry has excess capacity, may cause the rally to be unsustainable.

“Our checks with glove makers revealed that there has been no notable increase in orders yet.”

Maybank IB also said major Malaysian glove players expect demand and supply to rebalance by end-2023 after restocking activities resume in June 2023, to be followed by the normalisation of glove demand in 2024.

“We, however, have our reservations (especially after the influx of Chinese glove makers) as projections by the local glove makers is predicated on the existing supply situation before factoring in the resumption of and any potential capacity expansion.”

In 2022, glove makers’ expectations of a sector recovery by mid-June 2022 did not materialise, it said.

“Share prices of glove players under our coverage continued to plunge by 37% to 68% in 2022 after a spate of dismal glove makers’ earnings on stiff competition that led to lower average selling prices (ASP) and plant utilisation rates.

“Given the tough operating environment where demand-supply rebalancing is unlikely to happen over the medium-term, both Malaysian and Chinese glove makers have decided to put their capacity expansion plans on hold.

“Top Glove Corp Bhd has even halted its dividend payment to preserve cash and switched its focus from profitability to cash flow. It has lowered its ASP to secure sales and raise plant utilisation rate.

“To optimise cost structure, glove makers are also temporarily shutting down old and inefficient factories,” Maybank IB said.

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