KUALA LUMPUR (July 9): AmInvestment Bank Research has downgraded the glove sector to “Neutral” from Overweight.

In a note today, the research house said it believes that selling prices and operating profit margins of the glove companies will come under pressure due to a short term oversupply in the industry.

“Nevertheless in terms of demand, we expect sales volume to continue to grow at circa 8–10% in 2019.

“The expected robust growth is underpinned by an expanding global healthcare sector as well as increased awareness on the importance of hygienic practices throughout the industry, especially in emerging markets such as India and China,” it said.

AmInvestment said currently, glove consumption per capita in emerging markets such as India and China is still low at around 2–6 gloves as opposed to circa 100–280 gloves for developed countries.

It said Malaysia’s exports of rubber gloves in 2018 grew 14.0% year-on-year (+7.6% natural rubber gloves; +18.2% nitrile gloves) while according to the Malaysian Rubber Glove Manufacturers Association (Margma), the rubber glove industry has been growing at an average of 8–10% for the past 25 years.

“We believe there will be pressure on operating profit margins in 2019F stemming from the influx  of glove supply of the “Big 3” producers (Top Glove Cortp Bhd, Kossan Rubber Industries Bhd, Hartalega Holdings Bhd).

“FY19 will see an enlarged supply  of gloves by 13%, although the expansion will come at a gradual pace,” it said.