Hormuz disruption threatens NBR supply, could lift glove prices

Disruptions to Middle Eastern naphtha supply flows could slash global nitrile butadiene rubber (NBR) availability by up to 24%, according to Hong Leong Investment Bank Bhd (HLIB). Analyst Chee Kok Siang believes this could temporarily help glove makers by easing the industry's oversupply issue. Continuous closure of the Strait of Hormuz could potentially boost average selling prices for gloves, masking concerns over structural oversupply in the short term.

Holding a "Hold" rating on Kossan Rubber Industries Bhd, Chee maintains an unchanged target price of RM1.24 for the stock. Kossan's share price has corrected since mid-June, suggesting a more favorable risk-reward ratio. The bank sees Kossan's recent acquisitions of cleanroom product distributors as aligned with its long-term strategy of differentiating from Chinese competitors through specialized rubber gloves.

Inout Enterprise, a target of Kossan's proposed acquisitions, reported RM20.9 million in revenue and RM1.8 million in profit after tax for the year ending December 2025, yielding an 8.4% profit margin. Comparatively, Kossan's profit margin is lower at 7.3%. HLIB left its earnings forecasts unchanged, pending Kossan's second-quarter financial results for FY26 and the transaction completion.

The proposed acquisitions could add 6.1% and 5.6% to Kossan's core profit attributable to shareholders in FY27 and FY28, respectively. HLIB also noted Kossan's robust RM1.63 billion net cash position, equating to RM1.63 share or 59% of its market capitalization, and potential profit margin improvements from automation initiatives expected to be realized by end-2026.