TOP Glove Corp Bhd is not expected to face major disruption in its production capacity so long as the recently reported infection rate at its plants in Meru, Klang is under control.
Based on CGS-CIMB Research estimates, total capacity from Top Glove’s factories in Klang contribute up to 50% of its total current production capacity (90 billion pieces annually).
In a press statement yesterday, Top Glove revealed that 17 of its employees tested positive for COVID-19 after undergoing swab tests on Nov 2.
The employees which the research house understood to be asymptomatic have been admitted to hospital for treatment.
“We expect minimal impact on our FY2021-2023 earnings per share (EPS) forecasts. This is based on currently available information which includes the statement by Top Glove that it does not foresee any impact on its operations,” wrote analyst Walter Aw in a company update.
“However, our view is based on the assumption that the situation does not worsen such as a sharp increase in the number of confirmed COVID-19 cases among its workers.”
In the event this happens, CGS-CIMB noted that it would not discount the possibility of a potential disruption to the company’s operations in Klang.
Currently, Top Glove has a total workforce of 21,000 people, of whom an estimated 8,000 (38%) are based in Klang, according to the research house.
All-in, CGS-CIMB Research made no changes to its FY2021-2023 EPS forecasts pending further developments on this matter, thus retaining its “add” call with a target price of RM10.
This is the second time this week that Top Glove made headlines for the wrong reason.
Earlier this week, it was reported that the world’s largest glove manufacturer failed the litmus test of its social auditor, Amfori Business Social Compliance (BSCI), which UOB Kay Hian Research clarified that the glove maker has in fact scored a rating of “A” (nine), “C” (one) and “D” (two) in 12 audit areas.
Meanwhile, UOB Kay Hian Research in its latest research noted that operations at Top Glove’s production facilities have since resumed.
“However, should operations be temporarily shut, earnings impact will be muted,” opined analyst Philip Wong.
“Barring more stringent policies specifically applied to Top Glove from the Health Ministry and largely contained outbreak, the resumption of operations is a positive.”
That said, in a scenario of two production sites being shut down for two weeks, the research house projected the earnings impact to be less than 1% of Top Glove’s FY2021’s earnings.
UOB Kay Hian Research maintained its “buy” rating on the glove maker with a target price of RM12.30.
At 11.21am, Top Glove was up 1 sen or 0.12% at RM8.31 with 16.93 million shares traded, hence giving the company a market capitalisation of RM68.09 bil. – Nov 6, 2020
