MALAYSIAN glove makers stand to benefit from the plans by the United States to hike tariffs on Chinese-made rubber medical and surgical gloves.

“We anticipate that the significant hike in tariffs will drive a shift in production towards non-Chinese suppliers, which is likely to benefit Malaysian glove manufacturers under our coverage, namely Top Glove, Hartalega, and Kossan,” said PublicInvest Research in a research report released on Tuesday (Sept 17).

On September 13, 2024, it noted that the US Trade Representative (USTR) had announced substantial tariff increases on Chinese imports, including a phased tariff structure for medical face masks and surgical gloves, starting at 50% in 2025 and escalating to 100% by 2026, up from the initially proposed 25% in mid-May 2024.

“We view this development positively, especially considering the recent ramp-up in production capacity, as it is likely to enhance the position of Malaysian glove manufacturers and expand their global market share,” it said.

It anticipated ‘favorable market sentiment’ for Malaysian glove manufacturers in the short term and hence, reaffirmed its ‘Overweight’ rating on the glove sector.

The developments go back to mid-May 2024 when US President Joe Biden had announced a series of new tariffs targeting Chinese electric vehicles, semiconductors, aluminum, steel, and other imports.

Notably, the import tariff on Chinese-made rubber medical and surgical gloves will rise from the current 7.5% to 25%, effective by 2026, it said.

On Sept 13, USTR introduced a phased tariff structure for medical face masks and surgical gloves, starting at 50% in 2025 and escalating to 100% by 2026.

PublicInvest has ‘Outperform’ calls for Hartalega with a 52-week target price (TP) of RM3.16 and Kossan (TP: RM2.36) and ‘Neutral’ for Top Glove (TP: 1.15).

At the end of yesterday’s trading, glove makers surged on the Bursa Malaysia.

Hartalega Holdings Bhd surged close to 30% to RM3.14 from RM2.42 on Friday with 54.1 millions shares exchanging hands, its highest daily trade since mid-May.

Kossan Rubber Industries Bhd was up 23% to RM2.25 from RM1.83 while Top Glove Corp Bhd ended 25% higher at RM1.14.

In a separate report, Apex Securities Sdn Bhd said the UTSR move superseded the earlier proposed modifications announced in May 2024, noting that key changes in the official statement included the USTR doubling the duties on Chinese face masks, medical gloves, syringes, and needles.

“We believe the significant hike in tariffs on Chinese gloves will undoubtedly strengthen the Malaysian glove industry’s dominance in the market and address earlier concerns about potential market share losses amid intense competition,” it said.

It said Malaysia Rubber Glove Manufacturers Association (MARGMA) numbers showed that 35% of Malaysia’s rubber glove exports were to the US, amounting to RM4.3 billion in 2023.

“The higher tariffs imposed by USTR could benefit Malaysian glove manufacturers, as Malaysia’s success is attributed to its production of high-quality and sustainable products. Additionally, concerns about glove quality since 2023 have led to restrictions on 13 out of 14 Chinese glove makers since January 2024, with several listed on the FDA import alert list,” it said.

It said it favoured Hartalega (TP: RM2.91) and Top Glove (TP: RM1.25) as it expected Malaysian glove makers to gradually hike their average selling price (ASP) to about 2% in response to industry-wide increases in raw material costs, which should result in better profit margins.

Furthermore, it said Hartalega’s substantial presence in the US market further supported its stand.

In its report, HLIB Research said its analysis showed that the US event will result in a tariff-led volume/ASP surge among Malaysian glove makers from US glove distributors in 4QCY24-1QCY25, but may not have a significant incremental effect to our 2026 forecast.

“With the recent share price weakness and positive development from USTR, we believe that the risk-reward ratio has once again become favourable and the glove sector could regain market interest,” it said.

With the new development, it said it has upgraded the sector to ‘Overweight’ from ‘Neutral’ and maintained ‘Buy’ ratings on Hartalega (TP: RM3.62) and Kossan (TP: RM3.00).

It added that if trade was diverted to Malaysia, it believed US medical rubber glove distributors would prefer: (i) reputable companies and (ii) consistent business relationship (track records and at least three months of qualification procedures for new business relationship). – TMR