AMINVEST: Glove Manufacturer Faces Muted Recovery Amid Persistent Oversupply, Earnings Below Expectations

Performance Review

A leading glove manufacturer is anticipated to face a tepid recovery trajectory, as its latest financial results for the first half of fiscal year 2025 (1HFY25) fell significantly below market and analyst expectations. Despite a 6.2% year-on-year increase in core net profit to RM66.8 million, this figure represented only 36.0% and 46.9% of the investment bank’s and consensus full-year estimates, respectively.

The modest year-on-year growth in 1HFY25 was primarily driven by improved average selling prices and enhanced production efficiencies, which helped reduce overall costs. However, the second quarter of fiscal year 2025 (2QFY25) saw a notable decline, with core net profit falling 12.6% quarter-on-quarter. This was largely attributed to a confluence of negative factors, including a 10-day production halt in April due to a gas pipeline explosion and the deferment of US customer orders. Further headwinds came from global container shipment disruptions and uncertainties surrounding US tariff policies. While the glove and cleanroom divisions showed strong contributions, the Technical Rubber gloves segment experienced weaker revenue and an unfavorable product mix, impacting overall margins.

Operational Challenges and Outlook

Looking ahead, sales volume is projected to increase as inventory depletion from prior frontloading activities normalizes. Nevertheless, the Average Selling Price (ASP) is expected to remain subdued due to persistent structural oversupply in the global glove market, exacerbated by aggressive capacity expansion from Chinese manufacturers. This competitive environment continues to exert pressure on pricing power across the industry.

In light of these challenges, the investment bank has revised down its earnings forecasts for FY25F, FY26F, and FY27F by 27%, 39%, and 40%, respectively. Despite the gloomy outlook, the company’s solid net cash position of RM1.65 billion (RM0.65/share), representing 53% of its market capitalization, is seen as a buffer against further downside risks.

Analyst’s View

The investment bank maintains an Underweight rating on the stock, with a lowered target price of RM1.00 (previously RM1.60). This valuation is based on an unchanged target PE of 16x FY26F, which is 1 standard deviation above the pre-pandemic average for FY15-FY19, justified by the company’s continued profitability and sturdy balance sheet.