Overall results exceeded our expectations. HARTA and KAREX outperformed, while TOPG reported results that came in below expectations.
We anticipate flattish qoq earnings in the upcoming quarter, reflecting ongoing global uncertainties and sluggish US market demand.
On 12 May 2025, US announced a temporary reduction in reciprocal tariffs on Chinese goods (from 145% to 30%). Theasing move is expected to erode pricing advantage held by Malaysia glove makers, potentially leading to market share loss in the US.
Maintain a NEUTRAL stance on the Rubber Products sector, with HOLD ratings for HARTA (TP: RM1.93), TOPG (TP: RM0.92), and KAREX (TP: RM0.73).
Review. Rubber products sector has shown encouraging results for 1QCY25. HARTA and KAREX exceeded our earnings forecasts, meanwhile TOPG reported earnings came below expectations. HARTA and KAREX exceeded expectations due to better-than-expected sales volume and ASP for HARTA and unexpected tender market recovery for KAREX. Meanwhile, TOPG’s missed expectations was due to weaker than expected sales volume recovery.
In 1QCY25, overall core net profit (CNP) surged more than 40-fold qoq. Both TOPG and KAREX returned to profitability. TOPG reported a CNP of RM23.3m, reversing from core net loss (CNL) of RM21.5m in the preceding quarter, driven by higher natural rubber glove sales volume and improved margins in the nitrile glove segment. Meanwhile, Karex recovery was primarily supported by stronger-than-expected sales demand for condoms and lubricants, particularly in the tender markets. Meanwhile, the 54.9% qoq plunge in CNP of HARTA was impacted by a 20% drop in sales volume amid muted US demand.
On a yoy basis, the sector recorded a turnaround from CNL to a CNP. The recovery was mainly attributed to improved earnings in HARTA and TOPG, underpinned by better ASP and sales volume following the end of the destocking cycle and gradual easing of industry oversupply.
Outlook. We believe the near-term outlook remains challenging for companies with significant exposure to the US markets, due to ongoing Trump’s tariff uncertainties. While the global rubber glove market is gradually recovering, with growth anticipated through 2025, both HARTA and TOPG continue to face headwinds from soft US demand (due to late-2024 front-loading), continued oversupply in non-US markets, and rising domestic operating costs.
Glove ASPs are expected to soften, with sales volumes may also decline in the near term due to the pre-emptive build-up of inventories ahead of tariff implementation. Compounding to the pressure, the US government announced on 12 May 2025 on a temporary reduction in tariffs from 145% to 30% for a 90-day period for Chinese goods. Including the previously announced Biden-era tariffs, this translates to an effective tariff of 80% in 2025 and 130% in 2026. The easing is expected to erode pricing advantage held by Malaysian glove makers, potentially leading to market share loss in the US. Amid these uncertainties, most US clients are adopting a cautious "wait-and-see" approach. As such, we project a flattish qoq performance from both HARTA and TOPG in the upcoming quarter.
Similarly, we anticipate flattish qoq earnings for KAREX order flows disrupted by US tariff uncertainties. While Trump’s 90-day tariff truce prompted some stocking activities, we believe tariff reinstatement risks may weigh on KAREX’s US sales volume in coming quarters.
Valuation & Recommendation. Under the 1QCY25 the earnings season, we upgraded our recommendation on KAREX from Sell to HOLD with a higher TP of RM0.73 (from RM0.42). Meanwhile, we reiterate our HOLD recommendations with downward TP revision on HARTA to RM1.93 (from RM2.19), TOPG to RM0.92 (from RM1.25). We retain our NEUTRAL stance on the sector, reflecting ongoing global economic uncertainties and subdued demand dynamics.
Disclaimer
The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.
Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.
Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.210973 | 4.249411 |
EUR | 4.954495 | 4.965490 |
CNY | 0.589445 | 0.590817 |
HKD | 0.536642 | 0.541158 |
SGD | 3.306006 | 3.333319 |