Glove makers may turn in better earnings scorecards for the three months to September in reflection of lower raw material costs, analysts said.
Hartalega Holdings Bhd was the first to announce its results on Tuesday, posting a 26.8% increase in net profit to RM58.57mil from RM46.17mil a year earlier while revenue rose to RM255.01mil compared with RM229.54mil, citing easing of nitrile and natural latex prices as well as higher demand.
Input costs typically make up about 60% of a glove producer’s total production.
An analyst with a local brokerage told StarBiz that raw material costs had been on the wane in line with falling global commodity prices, likely translating into lower operating cost and better margins.
On a quarter-on-quarter basis, nitrile prices fell 12% to RM4.22 per kg during the July-September period although it was flat against the same period year last year, while natural rubber was trading at RM5.60 per kg.
Rubber prices closed at RM5.27 yesterday, off its near-RM8 peak in February. Its lowest point for the year was in mid-August
However, analysts diverged on whether the downtrend would continue into the coming months, with one believing prices would head south and another pointing out that “prices are always volatile” and have been picking up of late.
“It’s hard to tell,” she said.
Latexx Partners Bhd is scheduled to release its quarterly results on Nov 21 and Kossan Rubber Industries Bhd a day later. Supermax Corp Bhd and Top Glove Corp Bhd, currently the world’s top two rubber glove manufacturers, are expected to follow in December.
Another analyst said firms like Top Glove should see improved financials in the third quarter on the back of a favourable operating environment and stable demand.
The question of overcapacity, however, may arise over the next few quarters as the first production line in Hartalega’s Plant 6 commenced operations in September, adding 680 million pieces of new gloves in its capacity and boosting total capacity to 10 billion pieces per annum, according to Kenanga Research.
HwangDBS Vickers Reseach also said Line 1 could produce up to 45,000 pieces per hour compared to the original target of 42,000, with the remaining lines to be commissioned at a pace of one each month until all 10 lines were up and running.
Nonetheless, Hartalega management had said it anticipated the growth for nitrile glove demand to be sustainable at 20% annually for the mid-term, Hong Leong Investment Bank Research said in a note.
UOB Kay Hian, meanwhile, said it remained “cautious due to rising competition and margin contraction within the nitrile glove market,” and has maintained its “sell” call on the stock with a target price of RM3.58.