KUALA LUMPUR (March 6): Top Glove Corp Bhd's credit rating has been downgraded to AA- from AA by MARC Rating, which also revised the RM3 billion Perpetual Sukuk Wakalah Programme of the glove maker's wholly owned funding vehicle TG Excellence to AIS(cg) from A+IS(cg), amid a slower-than-expected recovery in the group's business and financial profile.

But on a more positive note, MARC Rating has revised Top Glove's outlook from negative to stable, on the back of a healthy liquidity position, with cash balances of RM1 billion that would support operational and financial obligations.

In a statement on Wednesday, MARC Rating noted that "Top Glove continues to contend with the lingering headwinds in the global glove industry from overcapacity, and the suppressed selling price of gloves", adding that competition from manufacturers in China remains stiff, and will continue to weigh on sales volumes and industry margins.

Nevertheless, the rating agency anticipates that Top Glove will benefit from its cost management initiatives that include decommissioning old production lines, temporary factory shutdowns, and workforce streamlining.

“There has been some improvement in profitability among Malaysian glove manufacturers, following capacity rationalisation and lower energy costs, although this remains substantially below the pre-pandemic level in FY2019 (the financial year ended Aug 31, 2019),” MARC Rating added.  

For the first quarter ended Nov 30, 2023 (1QFY2024), Top Glove's earnings before interest, taxes, depreciation and amortisation (Ebitda) turned positive, reaching RM21.3 million, compared to a loss of RM61.6 million for the previous corresponding period.

However, its Ebitda margin remained low at 4.3%, significantly lower than the 14% recorded in FY2019. MARC Rating said the narrow margin leaves little buffer against potential fluctuations in raw material and energy costs.

On Top Glove's healthy liquidity position, MARC said its leverage ratios remain low with an adjusted debt-to-equity (DE) ratio of 0.33 times and a net DE ratio of 0.12 times, adding that the group has an outstanding RM1.18 billion perpetual sukuk of which the first call date is on Feb 27, 2025, and is likely to be refinanced.