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_USTR Raised China Surgical Gloves Tariffs to 50-100%_
_*In a 105-pages official announcement just released,* the Office of the United States Trade Representative (USTR) announced final modifications on the statutory review of earlier tariff actions on China._
_*This is an update from earlier proposed modifications* announced in May 2024._
_*Key updates are on:* new timing and tariffs rates on face masks, *medical gloves,* needles, and syringes. Also includes: *i)* a proposal regarding coverage of additional tungsten, wafers, and polysilicon tariff lines; *ii)* an exclusion for ship-to-shore cranes ordered prior to May 2024; *iii)* an expansion of the scope of the machinery exclusions process; *iv)* and modification of the coverage of proposed exclusions for solar manufacturing equipment._
_*To recall back in May, US increases higher tariff of 25% (from current 7.5%) on China’s rubber medical and surgical gloves’ exports beginning 2026*._
_*The tariffs on China medical gloves are now raised to 50% in 2025, and 100% in 2026.* Refer to page 18-19 of the under *medical gloves* segment, “The U.S. Trade Representative has determined to increase the rate of additional duties on medical gloves to 50 percent in 2025 and to 100 percent in 2026._”
_*This higher tariffs were not entirely a surprise,* as we’ve been taking a leap of faith and highlighted possibilities of further detrimental policies towards China’s exports. *Our contrarian OVERWEIGHT rating* on the Malaysian glove sector were also largely premised on such potential scenario._
_*This steep tariff hike modification on China gloves undoubtedly solidify Malaysian glove industry’s* market leader position and allays earlier concerns on market share losses due to stiff competition._
*We expect share prices of Malaysian and Singapore glove stocks to strongly react towards this newsflow.*_
_*Maintain BUY on Harta* (RM2.42/TP:RM3.66); *Top Glove* (RM0.915/TP:RM1.45) and *Kossan* (RM1.83/TP:RM2.42)._
_*Next meaningful sector event* will be *Top Glove’s 4QFY24 results* releasing on *10th October.*_
Harta prospect is getting better …..
1. Glove demand is recovering
2. Utilisation rate is improving
3. ASP is going up and passing cost
4. Customer stockpiles are depleting
5. Customers are restocking already
6. Ramping up production
Possible good results in Q2 2025 & Q3 2025 because of demand recovery and once the delayed shipment is recognised
KeepBUY,higherMYR1.04TP(DCF)fromMYR1.01,27%upside.4QFY24 (Jun) core profit swing back to the black (MYR6.4m), bringing Supermax Corp’s FY24 core losses to MYR36m. Results were lower-than-expected, as SUCB has continued to execute low-price contracts for two years at certain distribution and manufacturing plants since 1QFY23. Nonetheless, we see the light at the end of the tunnel, premised on its recovery in profitability, given that global demand for gloves are gradually picking up.
• Results overview. SUCB reported a core profit of MYR6.4m in 4QFY24 (3QFY24: -MYR15m). Core profit was primarily adjusted for MYR27m (impairment of PPE), MYR72.9m (write-down of high price inventory), and additional tax charged at certain manufacturing units for prior years (amounting to MYR30.8m). On a sequential basis, the group saw higher sales (+25.6% QoQ), attributed to the increase in sales orders as customers ramp- up their stock replenishments. Assuming a blended ASP of USD20.50/1,000 pieces, this should work out to an estimated volume sold of 1.85bn pieces during this quarter (implying a 22% QoQ growth).
• Cost outlook. We expect key raw material costs to normalise in the coming quarters on the back of lower nitrile prices (4% lower in 3Q24 as at August). Meanwhile, natural gas prices are set to be lower QoQ in 3Q24 (-8% QoQ as at August) on the back of a lingering global demand outlook.
• Operating landscape turns favourable. Industry demand-supply dynamics continue to show signs of recovery on: i) The inventory destocking cycle coming to an end, ii) improving order visibility (with recent July exports showing signs of improvement; +11.8% MoM), and iii) customers being more receptive of price hikes. With the industry excess capacity gradually phasing out, we expect the gloves industry to achieve demand-supply equilibrium by 2H24. All in, we retain our view that gloves demand will continue picking up in the coming quarters, as client inventory levels continue to deplete – this is on top of gloves inventory levels (stockpiled since 2020) approaching their expiry dates (typical shelf life for gloves: 3-5 years).
• Earnings adjustments. Post results, we raise our FY25F earnings (FY26 unchanged) by 5%, taking into account of a favourable cost outlook that should be able to offset against the weakening USD/MYR exchange rate. Our TP is incorporated with a 14% ESG discount, as SUCB’s 2.3 ESG score is below our 3.0 country median. Post our earnings adjustment, our DCF-derived TP is now raised to MYR1.04. Our TP implies 0.9x FY25F P/BV against its pre- COVID-19 historical mean of 1.3x.
• Keyrisks:Higher-than-expectedsalesvolumes,weaker-than-expectedUSD against the MYR, and lower-than-expected raw material prices.
That’s an interesting observation. During the COVID-19 pandemic, the demand for gloves surged initially due to the need for personal protective equipment (PPE). However, once vaccines became widely available and the situation started to stabilize, the demand for gloves decreased, which impacted glove stocks.
In the case of the mpox virus, if an effective vaccine is developed and distributed, it could similarly reduce the demand for gloves and other PPE. However, the market dynamics can be influenced by various factors, including the severity of the outbreak, public health policies, and global supply chain issues.
Thailand has confirmed Asia's first known case of a more contagious and potentially deadlier version of the mpox virus with its transmission modes changed.
Experts noted that children are more likely to be infected in this outbreak due to their relatively weaker immune systems.
Thailand's Department of Disease Control confirmed on Thursday that a 66-year-old European patient who had travelled to Thailand from Africa was infected with the Clade Ib, a new, potentially deadlier strain of mpox, the first in Asia, and the second outside of Africa, according to the BBC News.
Sweden was the first place outside of the African continent to confirm a case of Clade Ib a week ago.
The infected man had also recently travelled to an unnamed African country, according to Sweden's public health ministry, as reported by BBC.
According to a doctor named Zhao Lei from Wuhan Union Hospital of China, the transmission of the mpox virus in the past was primarily through direct contact or sexual contact.
However, the variant of the Clade Ib that has been identified in Thailand is more contagious and threatening and can be transmitted by infected animals and passed from human to human through close physical contact, human secretions (such as respiratory droplets), rash or contaminated items.
The groups most affected by this mpox outbreak are women and children under 15 years old, as reported by People's Daily, quoting WHO figures.
According to Lu Hongzhou, head of the Third People's Hospital of Shenzhen, many children in Africa were not vaccinated with smallpox vaccine, and the administration of the vaccine is effective.
Besides, children, especially those in Africa, tend to have relatively weaker immune systems, and their nutrition is often poor, Lu told the Global Times on Monday.
Given the crowded living conditions of many African children, if a family member is infected, the risk of spreading the virus through close family contacts is high since they are highly likely to share the same room, Lu said.
Tedros Adhanom Ghebreyesus, director-general of the WHO, declared the surge of mpox a public health emergency of international concern (PHEIC), the second time for WHO to declare the mpox virus outbreak a PHEIC since 2022.
WHO launched the Global Mpox Strategic Preparedness and Response Plan (SRSP) that requires approximately $135 million to control the new mpox outbreak by implementing comprehensive surveillance and response strategies, as well as advancing research and equitable access to medical countermeasures against mpox, according to China Central Television.
As of July, a total of 99,176 laboratory-confirmed cases of monkeypox, including 208 deaths, have been reported to the United Nations health agency from 116 countries in all WHO regions.
WHO spokeswoman Margaret Harris urged manufacturers to scale up mpox vaccine production, according to a report from AFP on August 17.
The WHO also called for countries with monkeypox vaccine stockpiles to donate them to countries with ongoing outbreaks, saccording to the AFP.
In a flash note, UOB Kay Hian said there may be increased trading sentiment on the Malaysian glove sector on the news, as demand for medical products may surge if mpox escalates into a worrying outbreak.
Glove stock valuations are now at “relatively attractive levels” and still have “palatable upside, solely on fundamentals”, without taking mpox into account, UOB Kay Hian said while maintaining its 'tactically overweight' sector rating.
The house has ‘buy’ calls on Top Glove, Hartalega Holdings Bhd (KL:HARTA) and Kossan Rubber Industries Bhd (KL:KOSSAN
Mpox can spread through several ways, not just sex and massage. Here are the main methods of transmission:
1. Close Personal Contact: This includes direct skin-to-skin contact with mpox rashes or scabs, and contact with bodily fluids like saliva, mucus, or lesions around the anus, rectum, or vagina.
2. Intimate Contact: This involves oral, anal, or vaginal sex, as well as touching the genitals or anus. Hugging, kissing, and prolonged face-to-face interactions can also spread the virus.
3. Contaminated Objects: Mpox can spread through contact with objects, fabrics, and surfaces that have been used by someone with mpox, such as clothing, bedding, towels, or sex toys.
4. Infected Animals: The virus can be transmitted from animals to humans through direct contact with infected animals, their fluids, or waste.