RHB keeps 'Underweight' on rubber sector amid structural headwinds

KUALA LUMPUR: RHB Investment Bank Bhd (RHB Research) has kept its “Underweight” stance on the rubber products sector, citing ongoing structural headwinds such as prolonged oversupply, intensifying global competition and subdued pricing power that continue to weigh on the industry’s outlook.

The firm said that although the sector has seen a recent valuation re-rating, the recovery appears soft and sentiment-driven rather than supported by fundamentals.

It said investors should focus on efficient players with greater exposure to non-generic products, such as cleanroom gloves, naming Kossan Rubber Industries Bhd as its top pick within the sector.

Based on the latest data, RHB Research said glove export volumes rose 64 per cent month-on-month in July before easing six per cent in August, suggesting signs of restocking activity.

RHB Research attributed this to the depletion of inventory from earlier front-loading in late 2024 and the expiry of leftover pandemic-era stock.

“However, July US import data indicated that the majority of the export volume increase was directed to non-US markets and the US now accounts for 45 per cent of Malaysia’s glove exports, versus 75 per cent in June,” it added.

RHB Research said despite the limited presence of Chinese manufacturers in the US market, price competition among Malaysian producers has intensified, led by Top Glove Corp Bhd’s recent average selling price cuts.

The firm warned that while this may help Top Glove capture market share in the short term, the advantage is unsustainable as it hinges on lower latex costs.

“With latex concentrate prices likely to rise in the final quarter of this year amid heavy seasonal rainfall across Southeast Asia, thereby disrupting latex production, Top Glove’s cost advantage could narrow,” it said.

RHB Research said operating expenditure increases in the second half of 2025 may not be as steep as initially anticipated.

It noted that most glove producers are exempt from the five per cent sales and service tax on raw material imports.

It added that the newly mandated Employees Provident Fund (EPF) contributions for foreign workers—effective October 2025—are expected to raise production costs only marginally, by 0.1 per cent.

Meanwhile, the multi-tier levy mechanism on foreign workers, set for rollout in 2026, could increase production costs by about 0.4–0.5 per cent.

© New Straits Times Press (M) Bhd

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