KUALA LUMPUR (Feb 15): The world’s largest glove maker Top Glove Corp Bhd anticipated that sales volume would be minimally affected by the recent Red Sea shipping crisis, according to AmInvestment Bank Bhd.
Earlier this month, its peer Hartalega Holdings Bhd recorded a 10% drop in its revenue for the third quarter ended Dec 31, 2023 (3QFY2024), due to lower sales volume by 3% as it faced logistical challenges from the Red Sea crisis, coupled with a decrease in average selling prices (ASPs).
However, Top Glove’s management guided that its quarter-on-quarter sales volumes will grow between 15% and 20% in its 2QFY2024 forecast, AmInvestment said in a note on Thursday.
It is also worth noting that Top Glove saw a sustained medical rubber glove demand recovery since December 2023, with nitrile medical gloves improving significantly more than latex medical rubber gloves.
AmInvestment said this may be due to the rubber glove users switching from powder-free latex gloves to cheaper options of nitrile gloves and the absence of latex allergy issues, coupled with a majority of Chinese competitors (nitrile-focused) having been running at full capacity.
“In view of a recent demand pick-up, Top Glove is gradually ramping up manpower and capacities that were previously idle. We gathered that the process could take three months, during which foreign labour will be recruited and production lines (primarily cleaning procedures) will be initiated,” it said.
In terms of pricing, Top Glove has been increasing its ASPs for nitrile gloves since October last year to pass on higher raw material prices. Despite input material price reductions since December 2023, ASPs for nitrile gloves remain unchanged to facilitate margin expansion. It also has the highest cost structure among the Big Four glove makers.
“We view this pricing strategy to be more aggressive than some cost-competitive local peers, as they lowered ASP in 4QCY2023 (fourth quarter of calendar year 2023) by passing through the lower costs,” it said.
While the recent latex price has increased over 15% for the past month, Top Glove, however, refrained from increasing the ASP for latex gloves due to sluggish demand and ongoing competition from Thailand-based Sri Trang Gloves — which it still has excess capacity with a 3QCY2023 plant utilisation rate of 59%.
“The group intends to offset this with greater economies of scale from nitrile gloves,” it added.
AmInvesment maintained its “hold” call on Top Glove with an unchanged fair value of 86 sen per share, based on a CY2024 forecast of price-to-book value of 1.5 times or 0.75 standard deviation below its 10-year average of three times.
At the closing bell on Thursday, Top Glove shares were unchanged at 90 sen apiece, giving the group a market capitalisation of RM7.35 billion.