• D/G to UNDERWEIGHT from Overweight; Top Pick: Riverstone (RSTON). Sino-US trade negotiations saw a major breakthrough after both nations decided to temporarily lower tariffs on Monday. We think this could post a threat to Malaysian players, as the ASP difference with their Chinese peers are set to narrow to just USD1 from USD18. We estimate a potential loss of volume sales by a 1-7% range in 2025 for firms under our coverage for every 10ppts market share loss in the US.
• Narrowing ASP gap. The latest tariffs on China will be reduced from 145% to 30%, with 20% duties on fentanyl imports from China to remain in place. This effectively makes the import of medical examination gloves from China to 80% (50%+30%). Based on China's latest ASP of USD15/1,000 pieces, the ex-tariff price would be USD27 vs Malaysia ex-tariff ASP of USD23 (USD21+10%), with the 90-day grace period lasting until 8 Jul before the 24% reciprocal tariffs take effect. All in, the ASP difference between Malaysian and Chinese players is set to narrow to just USD4 from USD21. Looking to 2026, China ASPs could reach as high as USD31.50, taking into effect the 100% tariffs imposed under the Biden administration, ie Malaysia could remain competitive in 2026 should the 100% tariffs remain in place.
• Potential impact. Based on our analysis, for every 10ppts US market share loss to Chinese competitors, the potential volume loss to local players could be in the 1-7% range. That said, the overall impact on Top Glove (TOPG) should be minimal, given its US exposure is the lowest. Hartalega (HART) and Kossan Rubber (KRI) should see greater impact to volume sales, as both have a relatively higher revenue exposure from the US (c.60-70%).
• While the major breakthrough in trade negotiations from the world's two largest economies could bring more good than harm, we think the local glove sector (which benefited from the higher US tariffs on Chinese products) could face greater uncertainty in earnings recovery outlook should the US-China trade relationship improve. The 90-day grace period could potentially change the dynamic of the US glove market, which is currently being dominated by Malaysia (69% market share as at 1Q25 vs China's 3.6%; Figure 2).
• Recalibrating our valuation yardstick. Current sector P/BV is near 1.15x, 0.4SD below its 3-year historical mean of 1.3x, which we deem unattractive. Given the deteriorating outlook, we recalibrate our sector valuation yardstick to -1SD below mean, as we think investor sentiment could be impacted amid concerns over Malaysian glove makers at risk of losing market share to Chinese manufacturers in 2025. Our sector downgrade was based on: i) Unattractive valuations, ii) lack of near-term growth drivers, and iii) risk of China regaining market share in the US. Key risks: Deteriorating US-China relationship, increase in glove ASPs, faster-than-expected capacity expansions, faster-than-expected utilisation rates, and lower-than-expected raw material prices.

Source: RHB Research - 13 May 2025