Amid mounting ESG concerns, listed glove makers find themselves under siege

Amid mounting ESG concerns, listed glove makers find themselves under siege

LABOR Omnia Vincit – a Latin motto which simply means “Labour Conquers All” – is a reminder that diligence and perseverance are the underlying strengths to achieve greater things in life.

In a more literal sense, the motto can be taken to mean that the contribution of the workforce should be treasured and held in high esteem by their employers.

Needless to say, Malaysia’s lucrative glove industry is very much indebted to its labour-intensive workforce for its business success.

But such reliance is often taken for granted with the industry often prioritising profit above the welfare of its workforce – till the COVID-19 pandemic laid bare a mild version of modern day slavery where workers’ welfare is disregarded by them being subjected to pathetic living condition.

Earlier today, Kenanga Research became the second local research house to highlight its ESG (environment, social and governance) concern especially with regard to accommodation woes which have ultimately become a breeding ground for a spike in COVID-19 cases in the country.

In so doing, the research house slashed Top Glove’s target price by 20.4% to RM8.50 (from RM10.68 previously) but nevertheless kept the company’s “outperform” rating.

“So far 8,357 workers or 94% of those tested positive and have recovered or tested negative are ready to resume work,” noted analyst Raymond Choo Ping Khoon in a company update. “Presently, its Klang factories’ utilisation is slowly ramping up with the re-opening of all 28 factories.”

On Dec 18, PublicInvest Research downgraded Top Glove to “neutral” (from “trading buy” previously) while lowering its target price by 24.7% to RM7.30 (from RM9.70 previously).

While one can argue about bullish demand (that can last till 2023) or high average selling prices of gloves, there is no denial that ESG is a major yardstick that influences investment decisions by foreign funds in current times.

Over the longer term, ESG adherence coupled with the roll-out of mass COVID-19 vaccination drive is likely to pose a challenge to Top Glove and its Big Four counterparts as well as their smaller counterparts.

Moreover, price retreat may be a risk poser for Top Glove’s minority investors in the long run judging by the company’ tendency to indulge in share buyback exercise.

As of Dec 14, the exercise has raised its net outstanding treasury shares to 178.36 million or an equivalent of a 2.18% stake while the company has spent RM1.28 bil since September.

At 3.16pm, Top Glove was down 23 sen or 3.54% at RM6.26 with 16.4 million shares traded, thus valuing the company at RM51.34 bil.

Meanwhile, Supermax Corp Bhd – the day’s biggest loser – dipped 39 sen to RM6.42, while Hartalega Holdings Bhd declined 18 sen to RM12.40 and Kossan Rubber Industries Bhd shed 17 sen to RM4.80. – Dec 28, 2020