1、Asia Pacific Equity Research07 August 2024J P M O R G A NMalaysia Glove Manufacturers Price competition to persist;assuming coverage at OW for TOPG,N for HART and KRIHealthcareYen Voo,CFA,CA AC(60-3)2718 Joseph Koh(60-3)2718 JPMorgan Securities(Malaysia)Sdn.Bhd.(18146-X)Glove sector share prices hav

2、e been volatile,retracing from+40%in May 2024(when a targeted tariff on Chinese gloves was announced by the US)to+2-5 YTD(vs KLCI+9%).We see risk-reward turning more balanced.While overcapacity remains an overhang for the sector,we think it is now partially priced in after the sell-off.On the other

3、hand,Malaysian manufacturers could potentially benefit from trade diversion if the US hikes targeted tariffs on Chinese gloves.We assume coverage on the sector with a neutral stance.Our top pick is TOPG(OW,Dec-25 PT RM1.30)while we are Neutral on HART(RM2.90 PT)and KRI(RM1.80 PT).The risk overcapaci

4、ty.The top 8 glove makers total capacity grew 50%between 2019-23,outpacing demand growth of 23%.We see risk of persisting competition,as Chinese manufacturers could deploy the CNY6.5bn capital raised over the past 12m(we estimate adds 30bn capacity),while Malaysian manufacturers TOPG and HART have g

5、uided for 16bn capacity(5%of global demand)to be added in the next 12m.Malaysian manufacturers current EBITDA/1kpcs of US$2 is only half of the pre-pandemic levels as a result of intense competition,and we premise our earnings estimates on persisting competition where we forecast EBITDA/1kpcs to rem

6、ain flattish at best over the next 12 months,while consensus forecasts it to recover sharply by+50%over the next 12m.The opportunity regaining US market share.The US makes up 25%of global glove consumption,and the Malaysian manufacturers sales to the region fell 45%from pre-pandemic levels as Chines