24% US Tariffs on Malaysian Gloves. On 3 Apr 2025, Trump announced a 24% reciprocal tariff on Malaysian imports, including gloves, as part of a broader initiative to address trade imbalances and safeguard US industries, though this is paused for 90 days with a 10% floor tariff for non-Chinese imports.
Will this Trade War worsen? A full-blown trade war is highly probable, especially with the additional 41% tariff on Chinese imports, bringing the total to 145%. In response, China announced a retaliatory tariff of 125% (raise from 34%) on US goods on 12 Apr 2025.
Given these potential impacts, we conducted channel checks with HARTA's and TOPG’s key managements on latest updates.
Outlook (4QFY25): HARTA's sales volume is projected to decline by 15-20% qoq due to reduced reordering following US frontloading. However, a significant recovery in orders is anticipated by late Jun 2025. Blended ASPs are expected to remain on downward trend (US$ 19/1k pcs for the US market, US$ 17/1k pcs for non-US markets), representing a decrease of c.14% since Dec 2024 due to ongoing pricing pressure. Similarly, TOPG's sales volume is also forecast to decrease by 9-10% qoq for the same reason as HARTA's.
Raw Materials & Currency: Raw material costs (nitrile down ~6% in Mar 2025, latex stable) and the USD/MYR exchange rate (~4.40) have shown stability and are expected to remain at current levels. The stability should provide some cushion to over the near-term on both HARTA’s and TOPG's costs and profitability.
Intense competition in non-US market: Chinese manufacturers are increasingly capturing non-US market share, particularly in Europe, by offering lower prices (around US$ 14-15/1k pcs). Their US market share experienced a sharp decline (from 32% to 7-8% by Jan 2025) after the initial tariffs were imposed. China's lower coal prices provide them with the flexibility for aggressive global pricing strategies.
TOPG competes effectively outside the US, especially in Europe, leveraging its global reach and diverse product portfolio. However, the cheaper prices offered by Chinese glovemakers are eroding TOPG’s advantage in these regions as the latter is pricing at US$16-17/ 1k pcs in these markets, creating a US$2-3 difference. In contrast, HARTA’s US sales contribution has risen significantly to 63% in 3QFY25 (from 48% in FY24), leading to their confidence that losses in non-US market share will be offset by gains in the US market. (refer Fig 3)
US Reciprocal Tariffs: The 24% US tariff on Malaysian imports could raise the glove ASPs to US$ 21-25/1k. Meanwhile, the recent 145% tariff announced on 11 Apr 2025 would push Chinese glove prices to US$34-37/1k, affecting market competitiveness, potentially squeezing profit margins and leading to a decline in US demand.
Scenarios Analysis
Base Case. The impending 24% tariff allows Malaysian glove manufacturers to sell at ~US$21-25/1k pcs (post-tariff). HARTA aims for a blended ASP of ~US$ 20/1k pcs, while TOPG targets ~US$ 17-19/1k pcs (post-tariff), with tariffs passed to consumers (Table 1). Our FY25 forecast suggests Malaysian glovemakers are barely profitable at current or ~10% lower demand (Fig 1), due to relatively flat/downward raw material costs driven by lower Brent Crude prices amid global growth and tariff concerns dampening oil demand.
Best Case. Should a 10% tariff (Trump's floor) applied to Malaysia imports to US, Malaysian gloves could price at ~US$ 19-22/1k pcs, offering a ~5-10% discount compared to Chinese gloves (~US$ 21-23/1k pcs) (Table 2). This further reinforces Malaysia's position as a top US alternative supplier due to its large capacity, high quality, and favourable trade. Additionally, every US$0.1 strengthening of the USD will improve HARTA's and TOPG's operating profits (Fig 2).
Worst Case. A 50% tariff could push Malaysian glove prices to ~US$ 26-30/1k pcs, while Chinese gloves (facing a potential 145% tariff) might be priced at ~US$ 33-35/1k pcs even with some absorption (Table 3). We believe Malaysian manufacturers can still compete due to the intensity of the US-China trade war, noting that ~US$ 14-15/1k pcs is considered cut-throat production even for Chinese players. Furthermore, US customers are likely to prefer higher quality, lower-risk Malaysian suppliers.
Global Glove Market Outlook. Global glove market continues to face an oversupply situation. Following the tariff announcement in Sep 2024, US customers have accelerated their glove purchases, resulting in stagnant demand. Despite a price difference of ~US$ 6-7/1k pcs between Malaysian and Chinese gloves, our channel checks indicate limited interest from US customers. They remain cautious following the tariff announcement and are currently in a "wait-and-see" period. Consequently, we anticipate a subdued outlook for the glove market until July-Aug 2025, when we expect frontloaded glove inventories to be depleted and US customers to resume their typical purchasing patterns.
Earning Revision for HARTA. Amid the challenging operating conditions, including (i) an expected 15-20% qoq decline in sales volume for 4QFY25, (ii) weak order replenishment into 1QFY26 (Apr-May 2025) and (iii) coupled with ~14% decrease in ASPs for Jan-Mar 2025 orders, we now expect HARTA to return to the red in 4QFY25. As a result of these weaker operating metrics, we are revising down our FY25F-FY27F earnings estimates by an average of ~20%. Meanwhile, TOPG’s earnings remained unchanged, as we have already factored in some of the negative impacts in the last quarter's result report.
Our view. The scenario of serious oversupply from China flooding Europe is a tangible risk that could negatively impact gloves selling prices and profitability in the region. However, Malaysia's US market advantage from rising China tariffs allows them to offset other losses by meeting increasing US demand post-tariff as US market inventories deplete. Navigating the inventory management will be crucial for Malaysian players to navigate these shifting global market dynamics.
Keeping neutral stance. Correspondingly, we lowered our TP for HARTA by 38% to RM2.19 (from RM3.56 previously) and downgraded our recommendation to HOLD (from BUY). This adjustment, based on a P/B multiple of 1.5x (down from 2.2x) which is near -2 standard deviations of the 1-year historical average (Fig 6), follows the recent price correction and uncertainties in the market outlook. While we maintain our earnings forecasts and TP for TOPG (FV: RM0.92), we re-iterate our HOLD recommendation. In conclusion, we maintain our NEUTRAL stance on the gloves sector due to the rapid changes and uncertainties arising from the US's policy. A potential re-rating is not out of the woods should there be more concrete improvements in volumes and margins.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.353768 | 4.388176 |
| EUR | 4.972823 | 4.977858 |
| CNY | 0.599000 | 0.599600 |
| HKD | 0.561405 | 0.565352 |
| SGD | 3.320010 | 3.343413 |