KUALA LUMPUR (Oct 6): Top Glove Corp Bhd, which undertook a RM389 million impairment in the June-to-Aug 2023 period, says there should be no more impairment to be made in the near future as it expects the recovery for glove demand to pick up, while the group should have better cost efficiency after it streamlined its production facilities.
The RM389 million impairment comprises a goodwill impairment of RM138 million, and RM251 million worth of impairment and write off of property, plant and equipment.
The impairments and write off of assets widened the group’s net loss to RM463.15 million for the fourth quarter ended Aug 31, 2023 (4QFY2023) — its largest ever quarterly net loss — from RM62.99 million in 4QFY2022. Without the impairment and write off of assets, the group's net loss for 4QFY2023 would have come to RM65 million, half the RM130.59 million net loss it recorded in 3QFY2023.
Nevertheless, Top Glove managing director Lim Cheong Guan said the impairment and write-off of assets have no impact on cash flow.
“The impairment and write-off of assets was recognised following the operational rationalisation exercise and a review of the group’s income generating assets to strengthen future competitiveness,” Cheong Guan said after a virtual media and analysts’ briefing on Top Glove’s results for the fourth quarter ended Aug 31, 2023 (4QFY2023).
“The impairment is subject to annual review. If business conditions improve going forward, and we expect the situation should get better as well, it is unlikely to be a requirement for additional impairment. As for now, this RM389 million impairment is sufficient,” Cheong Guan added.
He said the group’s glove sales volume has been on an uptrend on a monthly basis since June this year, and he expects improvement to be sustained in the coming months.
“Going forward, we are seeing continued volume uptrend month-on-month [for] 1QFY2024. We should see higher sales volume compared to 4QFY2023,” Cheong Guan said.
The improvement in glove sales volume is also a sign that customers’ inventories are close to depletion and they are starting restock, he added.
Another driver for its sales is due to the pricing gap between Malaysian and foreign manufacturers has narrowed, allowing customers a better choice of outsourcing orders to Malaysian glove manufacturers.
“Six months ago nitrile glove pricing gap between China and Malaysia [glove manufacturers] is US$5 dollars, so customers would choose China [-made gloves] although quality is not that good or consistent, relatively. But, the price is so attractive as the US$5 dollars difference translates to cost saving of 20-30%.
"Now, the price difference is only US$1.50, less than 5%. You can see the orders are coming in now because the gap is smaller and we [Malalaysia glove makers] managed to reduce the costs a lot. This shows we are more competitive," said Top Glove executive chairman Tan Sri Lim Wee Chai.
The group has been in the red for five straight quarters now, following its latest 4QFY2023's losses. Revenue for 4QFY2023 dropped 51.93% to RM475.87 million from RM989.94 million in the previous year’s corresponding quarter.
As a result of the higher quarterly loss in 4QFY2023, the group recorded a net loss of RM926.64 million for FY2023, marking the glove maker's first annual loss, on an annual revenue of RM2.26 billion.
In FY2022, the group made an annual net profit of RM225.56 million, on the back of a revenue of RM5.57 billion.
On Friday (Oct 6), Top Glove was the third most active stock on Bursa, with over 118 million shares traded. The stock closed three sen or 3.82% lower at 75.5 sen, giving it a market capitalisation of RM6.20 billion.