Date of Report: September 17, 2024
Broker Name: UOB Kay Hian
Overview of Top Glove
Top Glove is Malaysia’s largest glove manufacturer, recognized globally for its significant production capacity and leadership in the medical glove sector. The company stands to benefit from the recent tariff increases imposed by the U.S. on Chinese-made gloves, which are expected to redirect demand back to Malaysian manufacturers.
Key Financial Data
- Share Price: RM 0.915
- Target Price: RM 1.45
- Market Capitalization: USD 1.7 billion
- Price-to-Earnings (PE) Ratio:
- EV/EBITDA Ratio:
Impact of US Tariffs on Chinese Gloves
The U.S. has announced a significant tariff hike on Chinese medical-grade gloves, with tariffs set to increase from 7.5% to 50% in 2025 and to 100% in 2026. This development is expected to revitalize investor sentiment towards the Malaysian glove industry, particularly for companies like Top Glove that have a large production capacity and strong presence in the U.S. market.
Top Glove’s Competitive Position
Top Glove remains the largest glove manufacturer in Malaysia, with a production capacity of approximately 60 billion pieces annually. While competitors from China have increased their global market share in recent years, the new U.S. tariffs are likely to reverse this trend, allowing Malaysian manufacturers like Top Glove to regain market dominance.
U.S. Market Exposure
- Top Glove’s exposure to the U.S. market is currently around 20% of its total sales. With the tariff hikes on Chinese gloves, the company is well-positioned to capture a significant portion of the demand that is expected to shift away from Chinese manufacturers.
Financial Outlook
Top Glove is expected to see a significant improvement in earnings starting in the second half of 2025, driven by the shift in demand back to Malaysian manufacturers due to the tariff hikes. The company’s production capacity and established presence in key markets position it as a major beneficiary of the structural change in the global glove market.
Peer Comparison
- Hartalega: RM 2.42 with a target price of RM 3.66
- Kossan: RM 1.83 with a target price of RM 2.42
Top Glove, with a target price of RM 1.45, is positioned for significant growth as it capitalizes on the U.S. tariff hikes and improved demand conditions in the global glove market.
Key Financial Metrics
- Revenue:
- 2024F: N/A
- 2025F: RM 5.4 billion
- EBITDA:
- Net Profit:
Risks
- Downside Risks:
- Increased competition from other Southeast Asian manufacturers
- Regulatory changes in key export markets
- Potential challenges in maintaining margins amid fluctuating raw material prices.
Valuation and Recommendation
UOB Kay Hian maintains a BUY rating on Top Glove with a target price of RM 1.45, implying a 58.5% upside from the current share price. The recommendation is based on Top Glove’s expected ability to regain market share in the U.S. following the imposition of higher tariffs on Chinese-made gloves and its leadership position in the Malaysian glove industry. The valuation reflects a price-to-earnings ratio of 27x, above the historical average, indicating investor confidence in the company’s ability to navigate the evolving market dynamics.
