Broker: UOB Kay Hian
Date of Report: 31 July 2025

Malaysian Glove Sector Faces Rising US Tariffs and Fierce China Competition: Outlook, Risks, and Top Picks

Overview: Malaysian Glove Sector Navigates Mounting Headwinds

The Malaysian glove industry is grappling with a challenging landscape marked by escalating US tariffs, heightened global competition—particularly from China—and evolving geopolitical dynamics. With earnings recovery delayed and sector valuations under pressure, investors are seeking clarity on the future trajectory and opportunities within the sector. UOB Kay Hian has downgraded its sector outlook to MARKET WEIGHT, highlighting significant structural challenges and adjusting 2025-2026 earnings forecasts downward.

US Tariffs: A Significant Negative Surprise

– The US government announced an increase in tariffs on Malaysian glove exports to 25%, effective 1 August 2025, up from the initial 24% imposed in April. – In comparison, tariffs on exports from Indonesia, Vietnam, and Thailand stand at 19%, 20%, and 36% respectively. – Malaysian glove manufacturers now face heightened pressure, especially if regional competitors ramp up production capacity. – Ongoing negotiations between Malaysian and US authorities continue, but local glovemakers are expected to absorb part of these tariffs due to a global supply glut.

China Competition: Price Wars and Regional Shifts

– Chinese glove manufacturers, facing severe US tariffs (80% in 2025, 130% in 2026), are shifting focus to Europe and Asia, intensifying price competition outside the US. – Aggressive pricing strategies by Chinese players have squeezed margins and led to lower average selling prices (ASP) for non-US markets. – Despite the challenges, Malaysian glovemakers are poised to increase their US market share as Chinese companies exit, with Malaysia’s share of US medical glove imports expected to rise to 65-70% in 2025 (from 25-30% in 2024). – However, 2Q25 earnings for the sector are anticipated to remain flat quarter-on-quarter and weaker year-on-year, as US buyers digest 7-8 months of inventory stockpiled from Chinese suppliers prior to tariff hikes. – Earnings recovery is projected for late 2025, with utilization rates estimated at 60-65% and ASP at US\$20-21 per 1,000 pieces in 2H25.

Sector Outlook and Earnings Revisions

– UOB Kay Hian downgrades the Malaysian glove sector to MARKET WEIGHT, citing: – Adverse US tariff developments – Intensifying Chinese competition – Weak equity momentum – 2025-2026 sector earnings forecasts are cut by 25-35% due to downward revisions in volume sales, utilization, and ASP assumptions. – Valuations are now pegged at sector mean (from -1SD), reflecting a more cautious stance.

Company-by-Company Analysis and Target Prices

Top Glove (TOPG MK) – HOLD

– Target Price: RM0.71 (lowered from RM0.79) – Shares have limited upside, with a 6% potential increase from current levels. – Faces sector-wide challenges, including tariff exposure and intensified competition. – FY26F PE at 27.3x and EV/EBITDA at 12.9x.

Hartalega (HART MK) – HOLD

– Target Price: RM1.55 (lowered from RM1.94) – Potential upside of 10.7%. – Higher PE valuation at 43.2x FY26F, reflecting cautious sentiment. – Earnings recovery is projected to lag due to margin compression from global ASP competition.

Kossan Rubber (KRI MK) – BUY

– Target Price: RM1.72 (lowered from RM1.87) – Stands out as the top pick with a 32.3% potential upside from current share price. – Offers deep value and defensive qualities, bolstered by a robust net cash position of RM1.58 billion (47% of market cap). – FY26F PE at 21.3x and the highest dividend yield in the peer group at 5.3%.

Key Risks: Regional Expansion and Overcapacity Concerns

– Chinese glovemakers are actively expanding capacity in ASEAN countries (notably Indonesia, Vietnam, and Thailand) to circumvent US tariffs. – A new Vietnamese plant is expected to start operations by Nov-Dec 2025, with an initial annual capacity of 5-8 billion pieces. – While this is modest compared to the US import market (90 billion pieces/year), further expansions could exacerbate overcapacity and suppress profitability for Malaysian producers.

Competitive Pressures in Europe and Non-US Markets

– China’s focus on non-US markets intensifies ASP competition in Europe and Asia. – The breakeven ASP for Chinese producers is estimated at US\$15/1,000 pieces, limiting their willingness to dump inventory below this level. – Nevertheless, Malaysian glovemakers may face delayed earnings recovery as European sales come under pressure, even as US orders rise.

Implications of US-China Tariff Policy

– The US initially imposed tariffs of 50% for 2025 and 100% for 2026 on Chinese medical gloves, now adjusted to 80% in 2025 (including base and fentanyl-related tariffs) and 130% in 2026. – These steep tariffs are expected to eliminate most Chinese glove sales to the US, allowing Malaysian suppliers to regain market share (potentially 65-70% in 2025). – However, the fluid nature of US-China tariff negotiations requires ongoing monitoring.

Valuations and Capital Upside

– Despite broad sector selloffs, current valuations offer some upside for long-term investors, based on 2026 normalized earnings: – Hartalega: 28x PE, EPS 5.6 sen, Implied TP RM1.55 (+10.7%) – Top Glove: 24x PE, EPS 2.9 sen, Implied TP RM0.71 (+6.0%) – Kossan: 18x ex-cash PE, EPS 6.1 sen, Implied TP RM1.72 (+32.3%)

Key Sector Charts and Trends

• Malaysian glovemakers’ effective capacity and quarterly sales volume are stabilizing after years of expansion and post-pandemic adjustment.
• Average selling prices (ASP) have normalized, with recent trends reflecting the impact of price competition and tariff policies.

Conclusion: Cautious Outlook Amid Structural Change

The Malaysian glove sector is undergoing significant structural shifts. While US tariffs and Chinese competition present formidable challenges in the near term, Malaysian producers—especially Kossan—are positioned to recapture US market share as Chinese rivals withdraw. Nonetheless, investors should remain vigilant toward ongoing risks, including regional overcapacity, prolonged pricing pressure, and the evolving US-China trade landscape. The sector offers selective value, but the road to recovery is expected to be gradual, with a meaningful rebound only likely from late 2025 onwards.