TOP GLOVE Corporation Bhd’s operating profit margin is expected to come under pressure next year on the back of potential oversupply of nitrile and latex gloves, says AmInvestment Bank Bhd.

The world’s largest glove manufacturer posted a net profit of RM111.42 mil for the first quarter ended Nov 30 compared to RM111.67 mil for the same period last year. This was “in line with both our and street’s expectations,” the research house said in a Dec 18 note.

But Top Glove is expected to have its margins squeezed “due to the 14.2% increase in nitrile and latex glove supply in CY20F by top rubber glove producers in Malaysia (Top Glove, Kossan Rubber Industries Bhd, Hartalega Holdings Bhd) and Thailand (Sri Trang Gloves Company Ltd),” AmInvest said.

This exceeded organic demand growth expectation of 8-10%, the research house added. “This will be further aggravated by higher labour cost in CY20F following the 9.1% upward revision in minimum wage.”

But AmInvestment is maintaining its buy call on the stock with an unchanged fair value of RM5.12/share based on a price-to-earnings (PE) ratio of 27x on FY21F earnings per share.

“Our PE multiple is based on the two-year historical forward PE. We continue to like Top Glove for its expansionary plans, focus and continual efforts in improving quality and operational efficiencies and position as the world’s largest rubber glove manufacturer,” it said.

Top Glove’s shares opened 1.67% lower at RM4.70 before the midday break on Dec 18.

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