KUALA LUMPUR: Average selling price (ASP) for gloves will likely start trending lower in the second half of calendar year 2021 (2HCY21), according to Public Investment Bank Bhd (PublicInvest).
The improving Covid-19 situation in the United States and Europe had resulted in a much lesser urgency for distributors to immediately replenish inventories back to its usual level of two to three months, PublicInvest said.
"The buyers are adopting a more careful stance currently, to avoid locking-in purchases at high prices," it said in a report today.
PublicInvest said raw material prices were expected to decline in 2HCY21.
Better yield after the end of the wintering period in May is also expected to result in lower latex concentrate price in 2HCY21.
"Lower raw material prices will lead to lower ASPs, as glove makers pass on the cost savings to buyers," the firm said.
Meanwhile, PublicInvest said glove makers' commitment to continue stepping up on their social compliance practices would translate into higher costs going forward.
The firm reckons that it would take time for the glove makers to fully pass on cost increase to buyers and this should result in margin compression in the near term.
PublicInvest has lowered its sector's earnings projections for financial years 2021 to 2024 earning forecasts by 10-51 per cent, on the back of lower ASP assumption.
"We downgrade our rating for Kossan Rubber Industries Bhd to 'neutral', while maintaining our 'neutral' call on Top Glove Corp Bhd.@
Its preferred exposure for the sector is Hartalega Holdings Bhd, due to its superior margins pre-Covid-19, continuing to rate it as "outperform".
Consequently, PublicInvest downgraded its call on the rubber glove sector to "neutral".