KUALA LUMPUR (Sept 19): Top Glove Corp Bhd slipped below 70 sen on Monday (Sept 19), falling as much as 7 sen or 9.15% to 69.5 sen — its lowest since more than five years ago — ahead of its fourth quarter (4QFY22) and full-year (FY22) results on Tuesday (Sept 20).
Top Glove, which was the most active stock on Bursa Malaysia, however pared its losses for the day, settling 6 sen or 7.84% lower at 70.5 sen, with some 110.71 million shares traded. The counter's shares are down 75% in the past year.
The last time Top Glove saw its share price traded below the 70 sen mark was on May 9, 2017, when it finished at 68.5 sen.
To recap, for the nine-month period ended May 31, 2022, the world’s largest rubber glove maker reported a net profit of RM288.56 million, compared with RM7.26 billion in the corresponding period, a 96% plunge year-on-year (y-o-y).
Its revenue during the period declined 68.5% y-o-y to RM4.5 billion.
A Bloomberg report on Monday noted that Top Glove, the maker of one out of every four gloves in the world, may post a fifth straight quarterly slump in profit as weak demand for protective gear globally and oversupply keep selling prices depressed.
Additionally, poor demand, abundant supply and competition from new entrants have hurt earnings at local glove makers in the past year.
At least one brokerage, Citigroup, expects Top Glove to suffer its first quarterly loss in data going back to 2001, stated Bloomberg in the report.
Top Glove’s share price has tumbled by more than 70% this year. Its price-to-book value ratio had fallen to below one time for the first time since 2008, Bloomberg stated.
Top Glove is estimated to post a net income of RM19.8 million for its upcoming 4Q, according to analysts’ consensus estimates gathered by Bloomberg.
Maybank Investment Bank Bhd, which has a sell call and target price (TP) of 65 sen, said recent results and guidance from the glove companies “give us no reason to reverse our long-standing underweight call on the sector”.
Its analysts Anand Pathmakanthan and Wong Wei Sum noted that additional risks may emerge if the US cuts import tariffs on Chinese goods.
“If the 7.5% import duty on gloves made in China is removed, producers from that country will likely slash prices to break into the US market,” the analysts said.
Citigroup, which also has a sell call but a higher TP of 73 sen than Maybank, expects Top Glove to record a loss of RM37 million in the fourth quarter of the financial year ending Aug 31, 2022.
Its analyst Megat Fais wrote in a note that revenue will continue to be under pressure from the still-falling average selling prices of rubber gloves amid an oversupplied market, and volume weakness, as well as rising wages and energy prices.
Based on estimates of consensus by Bloomberg, there are one buy, seven hold and 15 sell calls by analysts on Top Glove, with an average TP of 88.72 sen, a 25.8% upside from the closing price of 70.5 sen on Sept 19.
Meanwhile, according to its investor presentation dated Sept 15, Top Glove highlighted that its capacity expansion will be aligned with the demand and supply situation, especially for the 2023 to 2025 period.
The group hopes to eventually reach a production capacity of 156 billion pieces by end 2025.
Top Glove’s current capacity is at 100 billion pieces per annum with 812 production lines, coming out from its 50 factories which are located mostly in Malaysia. Apart from Malaysia, Top Glove also has presence in Thailand, China and Vietnam.
Top Glove noted that nitrile glove sales volume continued to show an increasing trend, driven by sales to the US, Western Europe, Asia and Latin America.
The group said nitrile gloves made up 40% of its product mix by volume in 3QFY22, a growth from the 37% and 34% in 2QFY22 and 1QFY22 respectively. Overall, during the pandemic in FY20, sales of nitrile gloves constituted 47% of total volume.
Top Glove added that there are strong growth opportunities in developing countries that have large populations but with currently low glove usage, such as Indonesia, India and China.