The Effect Of A Weaker Ringgit On Glove Companies In Singapore And Malaysia’s Stock Market

As some of you might be aware, the Malaysian currency, the ringgit, has weakened significantly in the last 12 months, prompted by issues ranging from the fall in oil prices, political scandals, and recently, the victory of Donald Trump in the US presidential election.

The weaker ringgit will have different impacts on companies that operate in Malaysia and/or report its results in the ringgit.

In this article, I’d be taking a look at the latest quarterly results of two leading players in the gloves industry in Malaysia, namely, the Malaysia-listed Kossan Rubber Industries Berhad (KLSE: 7153.KL), and the Singapore-listed Riverstone Holdings Limited (SGX: AP4).

This exercise can provide us with more insight on how glove manufacturers in Malaysia, some of which are listed in Singapore, are affected by the weaker ringgit.

Here’s a table showing year-on-year changes in the two companies’ revenue, net profit, and operating margin for the last nine months:

Source: Companies’ earnings results

For Kossan Rubber, it has seen its net profit fall despite enjoying higher revenue. This is due to pricing pressure and also an increase in labour and natural gas costs.

Similarly, Riverstone’s profitability is down as well due to pricing pressure within the healthcare gloves market and the presence of higher labour and utility costs.

As for the contributions from a weaker Malaysian ringgit, there is no specific mention of such a tailwind in both companies’ reports.

A Foolish conclusion

At the risk of oversimplifying, a weaker ringgit will generally be a positive for exporters that operate out of Malaysia while being a negative for importers. Glove manufacturers are considered to be exporters.

But, benefits for the glove manufacturers – if any – from currency effects have been eroded by pricing and cost pressures within the gloves industry.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Riverstone Holdings. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.