Rubber Products Outlook Remains Gloomy On Unfavourable Operating Environment - RHB IB

KUALA LUMPUR, July 16 (Bernama) -- RHB Investment Bank Bhd (RHB IB) expects the rubber products sector to remain bleak due to an unfavourable operating environment driven by a longer-than-expected period of inventory consolidation.

In a research note today, the bank said competition remains intense in non-United States (US) markets, largely due to the hostile pricing strategy adopted by Chinese manufacturers.

“Persistent challenges in cost pass-through, coupled with a rising operating cost environment and a weaker US dollar, are expected to weigh on glove makers’ profitability moving forward.

"Other downside risks include the deteriorating US-China relationship, rising glove average selling prices (ASPs), faster-than-expected capacity expansion, and lower-than-expected raw material prices,” it said.

Meanwhile, the bank also anticipates that the commissioning of new plants in Indonesia and Vietnam could pose a threat to Malaysia’s rubber product exports to the US by as early as November 2025.

According to the Department of Statistics Malaysia, the country’s glove exports recorded month-on-month declines of 22 per cent and six per cent in April and May.

This suggests that customer restocking activities remain sluggish, as the industry continues to experience a longer-than-expected gestation period following the front-loading seen in the fourth quarter of 2024.

The continued weakness of the US dollar against the ringgit has further eroded glove makers’ profitability, with the greenback depreciating by three per cent quarter-on-quarter and 5.4 per cent year-to-date as of June.

“Therefore, we maintained our ‘underweight’ call on the sector,” it added.

RHB IB maintained a ‘neutral’ call on Hartalega Holdings Bhd and Supermax  Corporation Bhd, with target prices (TP) of RM1.33 per share and 54 sen, respectively. Kossan Rubber, however, was downgraded to a ‘sell’ rating, with a TP of RM1.23.

As at 10.30, Hartalega lost four sen to RM1.50 with a total of 5.16 million shares traded; Supermax fell two sen to 61 sen with 3.60 million shares changing hands, while Kossan Rubber shed three sen to RM1.37 with 2.98 million shares traded.

-- BERNAMA=