‘Limited impact from US seizure of gloves’

PETALING JAYA: The detention of disposable rubber gloves by the US Customs and Border Protection (CBP) because of the use of forced labour is not expected to have an adverse impact on the entire sector, as the CPB’s “withhold release” order is for a specific company, WRP Asia Pacific Sdn Bhd, only.

Affin Hwang Capital said weak sector sentiment may, however, offer an opportunity to accumulate its top “buy” picks for the sector – Kossan Rubber Industries Bhd and Super-max Corp Bhd.

It believes the direct impact from the seizure of WRP’s gloves would be relatively limited, as the producers would still be able to sell their products in other countries.

According to Affin Hwang’s checks, WRP has an estimated production capacity of 11 billion pieces a year (around 5% of Malaysia’s overall capacity), with focus on the nitrile and surgical gloves segment.

“As the overall impact to the sector is relatively limited, we are maintaining our neutral call on the sector. Kossan and Supermax are our top buys for the sector, due to their undemanding valuations and higher-than industry growth rates. We have ‘sell’ calls on Top Glove Corp Bhd, Hartalega Holdings Bhd and Karex Bhd due to their rich valuations.”

The research house said the allegation of forced labour in the Malaysian rubber products sector is not new, as it was first reported by the UK press in end-2018 and early-2019, whereby they had identified three companies which had engaged in such. WRP was one of the three companies that was identified by the press.

“Although Top Glove and Karex were also mentioned back then, we believe that the recent changes implemented by the latter two have managed to address most, if not all, of the concerns. The resulting higher labour costs arising from the changes were already reflected in their P&Ls (profit & loss statements) since 1Q19.”

Affin Hwang said the biggest challenge for Malaysian companies to avert these allegations results from the continuously changing standards, as the definition of forced labour varies across countries.

“Our recent checks with the companies under our coverage indicated that they are in compliance with Malaysian regulations, and are subjected to social-compliance audits by their customers from time to time.”

It added that most of them have engaged social activists to conduct independent audits in order to be in compliance with international stan-dards. Ultimately, the companies have limited the maximum allowable overtime to 104 hours a month (average four hours a day) for all their workers.

“We believe the increased scrutiny on the sector’s labour practices is likely to speed up the whole automation process. Although the government does provide grants to help with the changes, it is relatively insignificant to the overall investment that the manufacturers need.

“We believe that the larger manufacturers might be able to increase their market share at the expense of the smaller manufacturers as some of them are unable to invest in automation,” Affin Hwang said.

source https://www.thesundaily.my/business/limited-impact-from-us-seizure-of-gloves-GB1443910