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Republican U.S. Senator Marco Rubio on Thursday proposed barring Chinese manufacturers from evading tariffs by setting up factories in other countries like Mexico, Vietnam or Malaysia.
Rubio accused Chinese manufacturers of shifting production to other countries that face lower U.S. tariffs, saying it allowed them "to evade tariffs and flood the U.S. market with cheap goods." A House committee raised concerns last week about a Chinese auto parts firm that may have sought to evade tariffs.
Malaysia Gloves Sector
Christmas comes earlier
Aboost to Malaysia glove makers competitiveness
We are pleasantly surprised by US' final USTR modifications on China
tariffs, which will raise tariffs on China-made medical and surgicat gloves
to 50% by 2025 and 100% by 2026 - well above the 25% proposed in May
2024. This increase will make Malaysia gloves relatively cheaper, boosting
their competitiveness in the US market. We maintain tactical POSITIVE on
the glove sector and expect earnings recovery in the next 12-15 months,
before additional capacity from China's overseas expansion picks up in
2026. Our top BUYs are HART and KRI. We U/G TOPG to a tactical BUY.
An unexpected positive development
We expect this latest development to make Malaysia gloves more
attractive in the US market. This market has been important for Malaysia
glove makers (TOPG: 15% of sales, HART: 50%), which have been losing market share to their Chinese counterparts since 2021 due to intense price
competition. While there is a risk that China glove makers may shift their
focus to the European market (TOPG: 35% of sales, HART: 25%), we believe Malaysia glove makers could offset the loss of their market share in Europe
with stronger sales in the US.
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._”
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 incl
Hartalega (HART MK)
Sector outlook on the upswing
Climbing out of the trough
HART's plant utilization rate continues to improve with higher sales orders
and is now running at c.85% (4QFY24: 73%). ASP outlook is also improving
as HART has managed to fully pass on higher raw material costs to its
customers. Given tight supply, ASP could improve further if demand
surges. HART's order lead time has now increased to 2-3 months (vs. China
glove makers' 3-6 months). We maintain our earnings forecasts a
Results above expectations
HART’s 4QFY24 core net profit of MYR1.8m (-97% YoY, -91% QoQ) was above
expectations. Management has turned more positive on the sector outlook
given improving glove demand and the ability to pass on additional raw
material cost to its customers. Plant utilisation rate [UR] has improved to
73% in 4QFY24 on 31b pcs annual capacity. We raise FY25-26 earnings
forecasts by 19-35%. Our TP is also raised to MYR4.50 TP (+14sen) on
unchanged 3.2x rolled forward CY26E P/B. BUY
Hope after the storm
Results above expectations
HART’s 4QFY24 core net profit of MYR1.8m (-97% YoY, -91% QoQ) was above
expectations. Management has turned more positive on the sector outlook
given improving glove demand and the ability to pass on additional raw
material cost to its customers. Plant utilisation rate [UR] has improved to
73% in 4QFY24 on 31b pcs annual capacity. We raise FY25-26 earnings
forecasts by 19-35%. Our TP is also raised to MYR4.50 TP (+14sen) on
unchanged 3.2x rolled forward CY26E P/B. BUY.
