Glovemakers unlikely to pay windfall tax as ASPs fall

Instead, the manufacturers will be using the revenue to upgrade their ESG standards in the coming years, MARGMA president says


MALAYSIAN glovemakers don’t expect to pay a windfall tax as the industry is reinvesting in new capacity, as the average selling prices (ASPs) of gloves are on a downtrend and likely to erase the exceptional gains the industry has been able to pasted in the past twelve months or more.

Malaysian Rubber Gloves Manufacturers Association (MARGMA) president Dr Supramaniam Shanmugam said the industry has emphasised to the government that their revenue during the Covid-19 period will be used for several purposes.

“We are committed in expansion to remain as a world leader which will create more job opportunities as well as increase our export revenue for the country,” Supramaniam said in a text message to The Malaysian Reserve (TMR).

He added that local glovemakers are planning to upgrade their environmental, social and governance (ESG) standards in the coming years.

Notably, the ESG will be a strong selling point for Malaysian glovemakers.

He added that the lower ASPs in-duty wide is expected to narrow the glovemakers profit margins for this year compared to the steep jump in profit last year.

The industry is estimated to have paid some RM2.6 billion in corporate tax last year plus a RM400 million one-off contribution in Budget 2021 from the “big four” producers — Hartalega Holdings Bhd, Top Glove Corp Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd — to help fight Covid-19 pandemic.

The “contribution” came as talk of windfall tax was mooted about with various parties. Analysts also believe the industry will not be hit with a windfall as ASPs trend lower and based on the fact the industry was spared the windfall tax so far.

“It is unlikely for the glovemakers to be taxed as it is quite contradictory after the government had decided not to tax them a few months ago,” an analyst with a local brokerage told TMR.

In July 2021, the previous Perikatan Nasional government decided not to impose a windfall tax on big companies including glovemakers.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz has recently stated that a sudden windfall tax could give investors a negative impression that the government is taking advantage of the multi-fold profits generated by the global health crisis.

Hong Leong Investment Bank (HLIB) believes any additional taxes could hurt the local glove industry due to falling ASPs and amid intense competition coming from producers from China.

“Higher taxes will undeniably reduce the glove players’ competitiveness in the global arena, especially when the Chinese medical gear producers are entitled to generous government subsidies.

“Taking all these into perspective, it would not make fair economic sense to impose windfall taxes on the local glove players, bearing in mind the government is already taking a larger pie from the former’s supernormal profits via the standard corporate tax rate,” HLIB said.

Shares of rubber glove companies continue to remain in a ‘bear’ grip as their values continue to retrace to the pre-Covid period.

Top Glove shares fell 14 sen yesterday to close at RM2.67 while Hartalega fell 22 sen to RM5.88.

“Top Glove immediate support level is at RM2.50 and if that gives way the stock can go to RM2.20 — the point of breakout the stock price did before it went on the big rally last year. Chart wise the glove stocks are back to square one,” a chartist with a local brokerage warned.

He said Hartalega’s share price has also run its full circle and the next price support level was at RM5.50-RM5.60 level, which was a triple bottom formation before the breakout to the top side last year.

Top Glove hit a high of RM9.77 (prices post-bonus issue) in August last year while Hartalega’s year high was RM21.16.

Malacca Securities Sdn Bhd head of research Loui Low said despite the sharp price correction, the two big glovemakers might be able to remain in the benchmark index due to their strong business models and investor interest.

Top Glove was at one point 40 sen short of being the most valuable company in the country but is now ranked 19th place while Hartalega is in the 25th spot.

Low thinks Dialog Group Bhd might lose its spot in the index in future reviews.

“Who are the companies that might be falling out — maybe Dialog or Sime Darby, maybe Genting Malaysia,” he said.

Low believes the share prices of glovemakers are not expected to rise anytime since the ASPs has not fallen enough and stabilised yet.

“People must not view glovemakers as growth stocks anymore but as dividend plays going forward,” he added.