KUALA LUMPUR (June 18): Investors should now buy shares of Top Glove Corp Bhd (KL:TOPGLOV) even as the world’s largest glove maker by volume may report another quarterly loss and stay in the red for the second year, RHB Investment Bank said.

RHB IB upgraded its recommendation for Top Glove to “buy” from “neutral” previously, citing improving investor sentiment from “favourable” operating dynamics. RHB IB joins a very small minority with a “buy”’ call out of more than two dozen research houses covering Top Glove.

Top Glove “is poised for a meaningful share price recovery in 2024”, RHB IB said in an earnings preview note. The stock is also high beta, the house noted, meaning that it has relatively higher risk and returns that come with higher volatility.

The company will probably report a core loss of RM40 million to RM45 million for the third quarter ended May 31, 2024 (3QFY2024) versus RM66 million in 2QFY2024, according to RHB IB’s forecast. Top Glove is scheduled to release its results on June 19. Both volume and average selling price (ASP) are expected to recover, RHB IB noted.

However, a 5%-6% rise in natural gas tariff will probably drag on Top Glove, while natural latex has climbed 12% and acrylonitrile was up 3.6%, adding to raw material prices.

Analysts are mostly bearish on Top Glove, with 10 out of 22 research houses featuring “sell” calls and eight on “hold” ratings. Four, including RHB, have “buy” recommendations. The consensus’ 12-month target price is 91 sen, implying a potential decline of 25% from the current price.

So far this year, Top Glove’ shares have risen over 30% on Bursa Malaysia amid investors optimism for a turnaround in the industry beset by oversupply from massive capacity expansion and lacklustre demand, following overbuying during the pandemic.

Top Glove peaked at RM1.26 in mid-May after the US raised tariffs on Chinese rubber medical and surgical gloves effective 2026, as smaller rivals also surged following the news.

After an active trading day on Tuesday, Top Glove closed unchanged at RM1.17, paring all of its gains after hitting an intraday high of RM1.26 in the morning. Trading volume stood at 82.09 million shares, making it one of the top 10 active stocks on Bursa. Its market capitalisation was maintained at RM9.6 billion.

“We learnt that the industry operating dynamics has turned favourable for glove manufacturers as we understand that customers are more receptive to the ASP increase in the coming months,” RHB said, noting that Chinese glove makers have also raised their ASP.

Demand, meanwhile, has picked up, with total industry exports volume growing 6% quarter-on-quarter in the first three months of 2024, which indicates that “the recovery momentum of global glove demand remains healthy,” RHB IB added.

The company in March reported a narrower net loss of RM51.19 million for 2QFY2024, bringing total net loss to RM108.91 million for its first six months.

While it has managed to narrow its half-year net loss compared with the previous year of RM332.90 million, results came in worse than consensus’ estimates, which called for a full-year net loss of RM69 million, amid lower-than-expected margins.

On its part, Top Glove executive chairman Tan Sri Lim Wee Chai said the company is optimistic of returning to the black as early as August this year, citing further pickup in demand for gloves after two years of inventory destocking due to excess capacity built up during the pandemic.

The company is betting on revenue jumping over 20% in 3QFY2024, after it observed increasing sales for March and April as well as an upward adjustment of the ASP of gloves.

Nitrile gloves' average ASP per 1,000 pieces stood at US$17, while that of natural rubber gloves’ average ASP stood at US$18 per 1,000 pieces during 2QFY2024.