Glove stock risk return improvement, Xiaomo shouted to buy top gloves

Analysts at J.P. Morgan Chase pointed out that glove stocks, which once surged 40% in May of this year, have now retreated. The year-to-date increase is between 2% and 5%, and the risk-reward ratio is more balanced.

The Composite Index rose 9% over the same period.

“Although production is oversupplied, it is still a major risk for glove stocks, but after the previous wave of sell-offs, stock prices now partially reflect this risk.”

At the same time, the analyst said that in the future, gloves imported from the US may be diverted more from China to Malaysia, which will be a major benefit for domestic glove makers, especially top gloves.

He said that in the face of the price war with Chinese peers, Malaysian glove companies' sales in the US market have declined steadily. Compared with before the outbreak of the epidemic, sales have plummeted by about 45%.

“However, as the US may raise the import tax on Chinese gloves by more than 10%, the difference in the price of gloves between Malaysia and China will be smoothed out, and US orders are expected to return to Malaysia.”

He added that as the US presidential election approaches, the US may impose higher tariffs on Chinese gloves, benefiting local businesses.

Coupled with the end of the merchant inventory removal cycle, the analyst predicts that in the next few quarters, Malaysian businesses should be able to reap higher revenue, and glove sales are expected to increase by 15% to 20% quarterly in the second quarter of this year.

Since top gloves have more idle production capacity, production can be increased at any time, and after the outbreak of the epidemic, the company lost more market share in the North American market than its domestic peers, so the analyst believes that top gloves are the big winners in the Malaysian glove industry.

Anyways. The analyst still views overall glove stocks from a neutral perspective, indicating that the problem of oversupply is likely to continue.

“With the current low return on equity (ROE) ratio (ROE), Malaysian glove makers are still seeking to expand production capacity, while Chinese glove makers are still financing and holding close to historically high levels of cash. These are all signs that the problem of oversupply of gloves is likely to continue.”

Furthermore, analysts said that the market expects the capacity utilization rate of glove companies to return to normal in 2026. Looking at the 2026 estimated cost to profit ratio, local glove stocks are 26 times higher, which is the same as before the outbreak of the epidemic.