THE removal of its export ban to the US would boost Top Glove Corp Bhd’s revenue which have suffered since shipments by the world’s largest glove company to the US was halted temporarily.
Moreover, the upliftment may result in a slower decline of Top Glove’s average selling price (ASP) given that ASP for the US market is about 5%-8% higher than the other countries, according to TA Securities Research.
“More importantly, the upliftment will improve its social/labour issues as well as reputation among customers,” reckoned analyst Tan Kong Jin in a company update.
Despite the positive development, TA Securities Research lowered Top Gloves target price by 19.5% to RM3.22 (from RM4 previously) while retaining its “hold” rating in view of downward earnings revision stemming from slashing of sales volumes and lower ASP assumptions.
Recall that the North American market accounted for just 8% of sales during 3Q FY8/2021 as compared to 23% in 2Q FY8/2021.
In a Bursa Malaysia filing earlier today, the world’s largest glove maker said it has been allowed to resume exporting and selling gloves to the US following modification of the finding by the US Customs and Border Protection (CBP) effective Sept 10 (today).
In its statement, CBP affirmed that disposable gloves made by Top Glove in Malaysia would be admissible at all US ports of entry as of the said date. Top Glove has requested for a one-hour trading halt to accommodate its latest announcement.
In its 4Q FY8/2021 results, which is expected to be released on Sept 17, TA Securities Research expects Top Glove’s quarterly profit to come in the range of between RM750 mil and RM850 mil or 58.3% to 63.2% lower quarter-on-quarter (qoq) than the net profit of RM2.04 bil for its 3Q FY8/2021.
“Our 4Q FY8/2021 profit assumption is premised on (i) lower ASP of circa -30% and (ii) lower sales volumes of circa -15% due to the (effect of) 60% workforce requirement and the enhanced movement control order (EMCO) in Selangor,” the research house pointed out.
“Cumulatively, this will bring our FY8/2021 profit forecast to RM8.1 bil which will account for 90.9% of consensus’ estimates.”
Although Top Glove has met the 80%-100% fully vaccinated requirement which allows the group to operate at 100% capacity, TA Securities Research expects utilisation rate to remain at about 70% currently due to the lower lead times and the need to run COVID-19 tests on employees every two weeks to comply with the new standard operating procedure (SOP).
At 11.53am, Top Glove was up 8 sen or 2.35% to RM3.48 with 38.23 million shares traded, thus valuing the company at RM28.56 bil. – Sept 10, 2021
