| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading glove manufacturer reported a substantial increase in core profit for the first quarter of FY26, driven by robust cost optimisation and efficiency gains, despite a largely flat revenue performance. The company’s 1QFY26 core profit reached MYR37.4 million, marking a significant 48% quarter-on-quarter (QoQ) surge. This outcome was in line with both the investment bank’s (RHB) and consensus full-year estimates, achieving 23.3% and 24% of forecasts, respectively.
Revenue for the quarter saw a marginal decline of 0.7% QoQ and 0.3% year-on-year (YoY), even as sales volume increased by 4% QoQ. The blended average selling price (ASP) declined by 4% QoQ to USD17.3 per 1,000 pieces. However, operating margins expanded to 4.6%, an increase of 0.8 percentage points QoQ, primarily attributed to strategic cost management and operational efficiencies. A lower effective tax rate of 14.7% further bolstered the bottom line.
Operational Performance and Cost Control
The improvement in operating margins was a key highlight, stemming from a concerted effort in cost optimisation and enhanced efficiency across operations. Higher utilisation rates, particularly for natural rubber products which reached approximately 75%, played a crucial role. This increased utilisation led to a larger QoQ decline in cost per carton, effectively preserving cost savings even amidst declining ASPs. Latex powdered and powder-free ASPs saw significant drops of 12% and 9% respectively compared to 3QFY25 averages, while nitrile ASPs demonstrated more resilience with only a 4% decline.
The product sales mix also shifted, with nitrile gloves now accounting for 54% of sales, and latex gloves comprising 36% (from 56% nitrile and 35% latex in 4QFY25). Regional volume growth was notable in Asia (+20% QoQ) and Latin America (+9% QoQ), predominantly driven by latex products.
Future Outlook and Capacity Expansion
The demand outlook for the glove sector appears to be improving, indicated by a rise in weekly order inflows to approximately 1.4 billion pieces. This volume now exceeds current production capacity and has extended lead times to over 60 days, signalling enhanced demand visibility. In response, the company plans to reactivate 6 billion pieces of idle capacity across its four factories. This reactivation is estimated to require MYR20 million in capital expenditure and the recruitment of approximately 800 additional workers.
Management anticipates incremental margin support from improved fixed-cost absorption as utilisation levels normalise. A gradual ASP improvement of 2-3% month-on-month is projected for 2QFY26. The company reiterated its target of 30% volume growth for FY26, while maintaining a cautious stance on execution and cost discipline.
Investment Bank’s View
Following these results, RHB has revised its FY26F-28F earnings forecasts upwards by 2-3%, incorporating updated annual report figures and a revised USD/MYR assumption. Consequently, the investment bank’s DCF-based target price for the stock is increased to MYR0.64, up from MYR0.61. RHB maintains a “Neutral” recommendation on the stock, citing key risks such as fluctuations in USD/MYR, glove ASPs, and raw material prices.
