Expect lower dividend from glove sector, say analysts

The sentiment follows global vaccination programmes and increasing supply from China-based glovemakers


GLOVEMAKERS are expected to give out a lower dividend this year due to net profits normalising towards pre-pandemic levels on the back of weaker average selling price (ASP), analysts said.

An analyst with a local brokerage said ASPs are declining in tandem with global vaccination programmes and increasing supply from China-based glovemakers, thus heightened competition for Malaysian glove players.

“I think the dividend payouts peaked last year. Going forward, the glove sector will reward shareholders with a lower dividend payout,” the analyst, speaking on condition of anonymity, told The Malaysian Reserve (TMR).

The analyst believes major shareholders have recognised that the current valuation on the sector is fair at this juncture.

As such, share buybacks may not push the share price higher as glove stocks are no longer undervalued and unlikely to rise to last year’s highs.

Regardless, the analyst opined that glovemakers would still be asked to contribute with a special payment to the government this year with the same percentage as in 2020.

Another analyst concurred on the expectation of lower dividend payout this year.

“A lot of glove players from China have expanded their production line aggressively, thus raising the competition,” the analyst told TMR.

He believes Malaysia’s four largest glovemakers, Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd, would likely reserve more cash in order to compete instead of distributing it to investors.

“Top Glove and Hartalega have been proceeding with the share buybacks, unlike Supermax and Kossan that have not done anything on that front as well as individual purchases,” the analyst added.

The analyst recommended retail investors to take the opportunity to buy glove stocks when the prices are lower.

“Glovemakers are unlikely to pay the special payment to the government this year like how they contributed out of their supernormal profit last year,” the analyst said.

MIDF Amanah Investment Bank Bhd analyst Ng Bei Shan downgraded the glove sector to ‘Neutral’ from ‘Positive’, citing a lack of near-term catalysts as she thinks the upcycle of the sector is at its tail end.

“We believe profitability is likely to normalise in tandem with the lower ASP. The demand for gloves is likely to remain healthy due to higher hygiene awareness and better healthcare practices,” Ng said in a research note last Thursday.

She stated that local glove companies are in a good position to defend their market share, given their healthy cashflow, sturdy balance sheet, and investment into new facilities and research and development.

Among the big four glovemakers, Ng preferred Hartalega for its above-industry profitability as well as its product differentiation and innovation.