Sharing from remisier. Glove is back?

*Gloves Sector Flash Update 🧤

🔹 *Trump impose 10% additional tariffs on China imported goods,*⚖️ after signing an executive order on Saturday. Including earlier tariff modification by USTR, China’s medical gloves likely faces higher tariff of 60% in Feb 2025 and 110% in 2026 (from current 50%; initially proposed 100% in 2026).

🔸 *China manufacturers no longer competitive in US market🇨🇳.* Assuming China’s breakeven ASP of US$14.5-15, adding in a 60% tariff will result in US ASP of US$23-24. Given that such tariffs will further revised to >100% in 2026 and considering supply chain consistency, US distributors/hospitals will likely stop purchasing from China, resulting in altering industry landscape which benefit MY glovemakers.

🔹 *Concerns on Trump’s proposed universal tariffs policy also have limited impact 🌍.* While there’s lingering uncertainty that Trump may introduce global tariffs of 10-20% across all imports to the US, MY glove-makers shall also be shielded. Factoring in the existing 60-110% US tariffs imposed on China medical gloves in 2025-26, the pricing gap between Malaysia and China producers for US exports is still wide.

🔸 *In terms of rough US market exposure🇺🇸:* i) Harta leads with >50% of total sales; ii) Kossan c.40%; iii) Top Glove c.20%; iv) Supermax c.29% historically. Such figures will see meaningful surge in coming quarters.

🔹 *Sector valuations palatable after ytd retracement.* We’ve downgraded the sector to Market Weight since early Jan 2025, citing “overhyped optimism” after domestic glovemakers’ share prices surged by 46-53% in 2024 (contrarian overweight rating since 2023). While MY glove stocks’ subsequently *retraced 11-20% last few weeks,* current valuations provide trading opportunities.

🔸 *Stock ratings💡.* Officially, we have a HOLD rating on Top Glove, Kossan and Hartalega after early-Jan’s downgrade. Nevertheless, *Kossan* (RM2.24/TP:RM2.65); *Harta* (RM3.31/TP:RM3.66); and *Top Glove* (RM1.20/TP:RM1.31) now trades at good entry level and *poses commendable capital alpha with limited beta* towards AI/DC or further US tariffs newsflow.

$TOPGLOV / 7113 (TOP GLOVE CORPORATION BHD) $HARTA / 5168 (HARTALEGA HOLDINGS BERHAD) $KOSSAN / 7153 (KOSSAN RUBBER INDUSTRIES BERHAD)