Date: Thursday, 3 October 2024
Broker: UOB Kay Hian Securities (M) Sdn. Bhd.
Company Overview
Top Glove Corporation Bhd is the largest glove manufacturer globally, supplying medical and industrial gloves. The company is listed on Bursa Malaysia with the stock ticker TOPG MK. Its key products include nitrile, latex, and surgical gloves, primarily targeting the healthcare sector.
Share Price and Target
- Current Share Price: RM1.01
- Target Price: RM1.45
- Upside: +43.6%
- Market Capitalization: RM8,091.2 million (approx. US$1.94 billion)
- Bloomberg Ticker: TOPG MK
- Major Shareholders:
- Tan Sri Lim Wee Chai (27.9%)
- Central Depository Pte Ltd (9.5%)
- KWAP (7.0%)
Performance and Stock Data
- 52-week High/Low: RM1.26/RM0.705
- Price Performance (YTD):
- 1 Month: +9.7%
- 3 Months: +46.7%
- 6 Months: +38.5%
- 1 Year: +43.4%
Key Financials (Year End: 31 August)
- Net Turnover:
- 2023: RM2,257 million
- 2024F: RM3,226 million
- 2025F: RM4,725 million
- 2026F: RM5,686 million
- Net Profit (Adjusted):
- 2023: -RM927 million
- 2024F: -RM175 million
- 2025F: RM410 million
- 2026F: RM481 million
- Net Profit Margin (2026F): 8.5%
Key Developments
Potential Forex Headwinds
Top Glove’s sales are primarily denominated in US dollars. However, the Malaysian ringgit has strengthened significantly against the US dollar (12.1% since 3QFY24), which could adversely impact earnings over the next two quarters (4QFY24-1QFY25). The company has a natural hedge since 45-50% of its production costs are in US dollars. Top Glove also plans to pass on part of the cost to customers by raising its average selling price (ASP).
US Tariff Impact on China Medical Gloves
The recent revision of US tariffs on China medical gloves is poised to benefit Malaysian manufacturers like Top Glove. The first phase of these revised tariffs will commence in early 2025, leading US distributors to stop importing medical gloves from China as early as November 2024. Top Glove has already received inquiries and orders from large-scale US distributors that had shifted their sourcing to China during the COVID-19 pandemic. The company plans to raise the ASP for its nitrile gloves exports to the US by US$1-2 per thousand pieces starting November 2024, with prices expected to return to pre-pandemic levels by 2025.
Bright Prospects Beyond 2024
Despite short-term challenges, Top Glove’s medium- to long-term outlook remains positive. With industry fundamentals improving — such as higher sales volumes, utilization rates, and ASP — the company anticipates strong earnings recovery by 2025-2026. With the absence of Chinese competition due to tariffs, Top Glove expects ASPs for nitrile gloves to reach US$23-24 per thousand pieces by 2025, up from the current US$19-20. The utilization rate is also projected to rise above 85%, driving earnings growth.
Capacity Expansion
Top Glove is planning to ramp up its production capacity from 64 billion pieces annually to 75 billion pieces by 2025. The company has already restarted production at 3-4 factories and is working to reopen 8-10 glove production lines each month. This increase in capacity is supported by hiring 200 additional workers per month, with a total of 1,100 new hires anticipated by 2025. This will raise the total workforce from 11,000 to 12,000 employees.
Sales Recovery Momentum
Top Glove’s monthly sales volume increased to 2.4-2.8 billion pieces in June-August 2024, improving the utilization rate to around 50% in 3QFY24 (compared to 39% in 2QFY24). For September-October 2024, the sales volume is expected to further improve to 3.5 billion pieces per month, with a utilization rate of 66-70%. Stabilizing raw material costs, coupled with higher sales volumes, are likely to contribute to improved cost efficiency and earnings.
T6 Turnaround Plan
The company’s turnaround strategy, the T6 plan, remains on track. Top Glove recorded RM54 million in gains from landbank disposals in 3QFY24, as part of its RM300 million non-core land disposal strategy. Of this, RM250 million has already been completed, with RM200 million realized by 3QFY24 and another RM50 million to be realized in 4QFY24. These proceeds will be used to partially retire the company’s RM1.18 billion sukuk loans.
Environmental, Social, and Governance (ESG) Initiatives
Top Glove remains committed to sustainability.
- Environmental: The company aims to reduce electricity and natural gas consumption intensity by 26% and 25%, respectively, by 2025.
- Social: Verified by independent consultants, Top Glove is free from all 11 indicators of forced labor as set by the International Labour Organization (ILO).
- Governance: The company emphasizes gender diversity, with 42% of its board members being female.
