The high demand for gloves worldwide has allowed the world’s largest glove manufacturer, Top Glove Corp Bhd, to benefit the most among other players in terms of the average selling price (ASP) for its products, due to the diversified customer base of the company.
“Top Glove has received tremendous orders that have filled up its capacity until July 2021 with its sales lead time stretching to more than 11 months, compared to the two months pre-Covid-19,” said TA Securities analyst Tan Kong Jin.
Tan also noted that, given the long duration to fulfil the future orders, the company has been quoting indicative ASPs, and will only lock in final ASPs one month or less prior to deliveries. At the same time, customers have to put down a deposit between 10% and 20% to place orders.
RHB Investment Bank analyst Alan Lim agrees, noting that this is a continued demand-supply imbalance, and added that Top Glove is likely to see the highest ASP increase among original equipment manufacturers (OEMs) due to its diversified customer base.
“We believe Top Glove has the most diversified customer base among Malaysia’s Big 4 players. During an extreme demand-supply imbalance situation, the company’s average ASP should benefit the most among the OEM operators,” said Lim.
“This is caused by its higher pricing power as a major supplier to a diversified customer base, in which each client orders in smaller volumes. We note that its biggest customer contributes less than 4% to sales. Top Glove also has a more balanced product mix to offer to a different range of customers,” he added.
This trend is shown by Top Glove’s ASP rising by about 5% month-on-month since March 2020, according to Tan, who believes that this is both demand and supply driven, as all countries are increasing their Personal Protective Equipment (PPE) reserves in preparation for the second wave of Covid-19. This comes during a time when glove manufacturers are running out of spare capacity.
“As such, we predict the current favourable pricing can be sustained until 1Q21,” said Tan.
Both analysts believe that Top Glove’s upcoming 3QFY20 results on June 11 will see profit double quarter-on-quarter, with Tan also believing that price escalations will push the company’s profits further upwards in the later half of 2020.
TA Securities upgraded Top Glove from sell to buy, raising the target price to RM17.33. RHB Investment Bank maintained its buy call, but also increased the target price for Top Glove to RM18.30, from a previous RM13.30.
At 3.41pm, Top Glove’s shares had rallied to RM16.14, up 70 sen, with 22.9 million shares changing hands. At that time, the intra-day high for the stock was charted at RM16.74. – June 5, 2020
