Introduction to Top Glove Corp Bhd

Top Glove Corp Bhd, the world’s largest glove manufacturer, is on a path of recalibration as the glove industry witnesses significant shifts in demand and market dynamics. The company is well-positioned to benefit from changing trade policies and healthcare trends, as highlighted by UOB Kay Hian in their recent analysis.

Market Position and Shareholder Overview

Top Glove boasts a robust market capitalization of RM9,781.6 million (approximately US\$2,205.4 million) with 8,017.7 million shares issued. The company’s major shareholders include Tan Sri Lim Wee Chai (27.9%), Central Depository Pte Ltd (9.5%), and KWAP (7.0%). This ownership structure underscores strong institutional and individual investor confidence in the company.

Key Financial Metrics

The company’s share price stands at RM1.22 with a target price of RM1.31, indicating a potential upside of 7.1%. The FY25 projected Net Asset Value (NAV) per share is RM0.59, while its Net Debt per share is a modest RM0.02. Despite a challenging financial period in 2024, the company is expected to rebound strongly in 2025, as evident from its forecasted financial metrics:

• Net Turnover: RM5,108 million (2025F), a 103% year-on-year growth.
• EBITDA: RM790 million (2025F), marking a significant recovery from losses in 2024.
• Net Profit (Adjusted): RM352 million (2025F), with a projected net margin of 6.9%.
• EPS: 4.4 sen in 2025F, expected to grow further in subsequent years.

Market Dynamics and Growth Drivers

Shift in Demand from China to Malaysia

Top Glove is set to capitalize on the US’s shifting demand dynamics following the imposition of additional tariffs on Chinese medical gloves. Effective February 2025, tariffs on Chinese gloves increased to 60%, with further hikes to 110% by 2026. This policy shift is expected to redirect a significant portion of US glove imports to Malaysian manufacturers like Top Glove.

In response to these tailwinds, Top Glove has already raised its average selling price (ASP) for US nitrile gloves by approximately US\$1 per 1,000 pieces since November 2024. The ASP is projected to reach pre-pandemic levels of US\$23 per 1,000 pieces in 2025, significantly boosting profitability and margins.

Impact of Rising Influenza Cases

The global surge in influenza and respiratory illnesses, particularly in countries like Japan, has positively influenced the sentiment surrounding the glove sector. While this trend may not escalate into a pandemic-level demand surge, it has prompted distributors to stockpile inventories, thereby supporting near-term sales growth.

Operational Highlights

Capacity and Utilization

With an active annual production capacity of 64 billion pieces, Top Glove is well-equipped to handle the anticipated increase in order volumes. The company plans to expand this capacity to 70 billion pieces by the end of FY25. However, given the current demand levels, capacity expansion efforts are expected to slow down in early 2025, leading to a reduction in refurbishment costs by 30-40% quarter-on-quarter.

Regional Market Shifts

Top Glove is witnessing a re-shuffling of market shares between the US and Europe. While sales in Europe softened by 3-5% in January 2025 due to intensified competition from Chinese manufacturers, US sales surged by 5% month-on-month. The company’s US sales mix is projected to increase to 25-30% of total sales in 2025, offsetting the declining European market share.

Environmental, Social, and Governance (ESG) Initiatives

Top Glove is making notable strides in its ESG strategies:

• Environmental: The company aims to reduce electricity and natural gas consumption intensity by 26% and 25%, respectively, by 2025.
• Social: Independent third-party verification confirms that Top Glove is free from all 11 forced labor indicators outlined by the International Labour Organisation.
• Governance: Gender diversity is a priority, with 42% of the board of directors being female.

Valuation and Recommendation

UOB Kay Hian maintains a HOLD recommendation for Top Glove with an unchanged target price of RM1.31. This valuation implies a 27x 2025F Price-to-Earnings (PE) ratio, which is 0.5 standard deviations above the historical mean. The medium-to-long-term outlook remains promising, supported by significant earnings recovery and favorable market dynamics.

Conclusion

Top Glove Corp Bhd is poised for a significant turnaround in 2025, driven by favorable trade policies, recovering ASPs, and robust operational capabilities. While challenges persist in certain regions, the company’s strategic positioning in the US market and its comprehensive ESG initiatives underscore its resilience and growth potential. Investors are advised to monitor its performance closely as the glove industry navigates these transformative times.