KUALA LUMPUR (March 16): Top Glove Corp Bhd, which suffered from a net loss for the third consecutive quarter, expects the utilisation rate of its production lines to stabilise over the next three months amid the industry-wide cut down of gloves supply and depleting inventories, which create momentum in stock replenishment.

Top Glove’s factories’ average utilisation rate is running at 35% as at end-Feb this year, a slight improvement over the 30% utilisation rate posted in the previous quarter ended Nov 30, 2022 (1QFY2023) as sales volume increased by 6% quarter-on-quarter in 2QFY2023.

“[Top Glove’s plant utilisation rate is running] very low at one-third of our capacities. So I think it is almost at the bottom. The chances of going up is higher than coming down because they [customers] still need gloves,” said Top Glove chairman and founder Tan Sri Dr Lim Wee Chai at a virtual briefing.

To tackle the cost increase, the group conducted a cost-pass-through mechanism in February this year by increasing its glove's average selling prices as well as consolidating operations.

The major contributor to the group's cost increase is the electricity tariff which increases about 43%, effective Jan 1 this year, it explained.

The group’s executive director Ng Yong Lin said that Top Glove had already consolidated its operation, by temporarily shutting down 14 factories. He said that the world’s largest glove maker will study if there is a need to further consolidate its operations to ensure that it runs efficiently.

Given the glove industry oversupply situation, Ng added that no new capacity is to be added to the group’s capacity for this financial year (which ended Aug 31, 2023) and for the coming financial year (FY2024).

Last year, Top Glove announced that it intends to defer its expansion plans in view of the oversupply situation, which is expected to exert downward pressure on the average selling prices (ASP) of rubber gloves.

Back in 2021 when demand for rubber gloves were at its height, Top Glove planned to double its annual manufacturing capacity from the then 100 billion pieces of gloves to 201 billion in 2025. However, due to the industry headwinds, the group had scaled back its capacity expansion programme by about 22% or 45 billion pieces of gloves to 156 billion by 2025.

On Thursday (March 16), Top Glove posted a net loss of RM164.67 million for the quarter ended Feb 28, 2023 (2QFY2023), its third consecutive quarter being in the red, as the existing glut in stocks and ongoing moderation of ASPs, compounded by rising production costs, weighed on its performance.

The net loss in 2QFY2023 is in contrast to a net profit of RM87.55 million in the corresponding quarter a year earlier. During the quarter, its revenue more than halved to RM618 million from RM1.48 billion in the corresponding quarter.

Nonetheless, quarter-on-quarter, losses narrowed slightly for the quarter under review, versus RM168.24 million for 1QFY2023. Revenue dipped 2.30% to RM618 million from RM632.53 million.

Top Glove topped the actively traded list on Thursday, with 184.96 million shares exchanging hands. The stock rallied 19.29% or 13.5 sen to settle at 83.5 sen, giving the group a market capitalisation of RM6.85 billion.

The market consensus forecasts an annual net loss of RM303 million for FY2023 — an estimate prior to the latest quarterly results.

To meet the market expectation, Top Glove would need to be in the black in the following two financial quarters given that the world's largest glove maker posted a cumulative net loss of RM332 million in the first half of FY2023. 

Nonetheless, Lim told the media during the press conference that the group will post an annual loss for the financial year ending Aug 31, 2023 (FY2023).

"This financial year for sure we will be loss-making. I think turning around, hopefully, by next financial year we will do better and be profitable,” he added. 

Prior to this, Top Glove had enjoyed a good run during the Covid-19 pandemic, as a surge in glove demand propelled the group's annual net profit to RM1.75 billion in FY2020 and RM7.71 billion in FY2021.

In FY2022, demand for rubber gloves lost steam, which resulted in Top Glove posting a much lower net profit of RM225.56 million as lower average selling prices for gloves ate into its earnings.

The investing fraternity will be watching with keen eyes on whether the analysts will project a wider net loss forecast for FY2023 and FY2024. The target price of Top Glove ascribed by the analysts will also be focused on, given that it soared 19.29% on Thursday to 83.5 sen.