ANALYSTS remain bullish on Top Glove Corp Bhd despite the imposition of enhanced movement control order (EMCO) for a two-week period effective today (Nov 17) which affects some 2,500 of the company’s 16,000-strong workforce in Meru, Klang. (Click here for our story)
Assuming that all 2,500 workers (15.6% of Top Glove’s total workforce of 16,000 and 31.2% of the estimated number of the company’s workers in the Klang area) are not allowed to work for two weeks, CGS-CIMB expects up to 15% of Top Glove’s total production capacity will be affected.
“As a result, we estimate the impact to our FY2021F revenue and net profit forecasts at -0.6% and -0.9%, respectively,” wrote analyst Walter Aw in a company update.
“At this juncture, Top Glove is seeking clarification whether all the workers in these two hostels are restricted from working in the factories (it is under the impression that this is the case).”
Assuming that all of Top Glove’s workers in the Klang vicinity are required to be screened for COVID-19 (RM330 per test), CGS-CIMB Research noted that this will result in a one-off cost of RM3.2 mil (0.03% of its FY8/2021F net profit estimates).
“We also gather that Top Glove does not expect any cancellation or penalty payments to its customers owing to late delivery of orders as a result of this EMCO,” revealed Aw.
As such, the research house makes no changes to its FY2021-2023F earnings per share estimates pending further update on the matter. It also maintained its “add” call on Top Glove with an unchanged target price of RM10.00.
“We continue to like Top Glove as it is the key beneficiary of higher glove demand due to the COVID-19 pandemic given its position as the world’s largest glove maker,” added CGS-CIMB Research.
Meanwhile, TA Securities Research reckoned there will be a potential loss of revenue.
“Based on our back-of-the-envelope calculation, the opportunity cost could be around RM54.6 mil for 14 days of disruption which is less than 1% of FY2021 net profit, assuming that each plant is generating profit of around RM780,000 per day,” projected analyst Tan Kong Jin.
“Coupled with the cost of sanitisation and screening of workers, we believe the overall impact is less than 3% of FY2021 earnings. Besides that, management added that there is no need to write of any inventory.”
While reiterating its “buy” rating on Top Glove, the research house lowered the company’s target price to RM8.84/share (previously RM10.80/share), identifying further extension of the EMCO in the affected area where Top Glove’s plants are located as a key risk.
PublicInvest Research is of the view that Top Glove could hire local part-timers to make up for the temporary worker shortage.
“We do not think that the two weeks’ impact will affect Top Glove significantly given that manufacturing plants are still allowed to operate despite at a lower utilisation rate due to worker shortage,” opined analyst Chua Siu Li.
“Should the situation worsen, leading to a more serious shortage of gloves, we think that average selling prices could increase further given the fact that TopGlove commands 25% of the global market share.”
All-in, PublicInvest Research maintained its “trading buy” call on Top Glove with an unchanged target price of RM9.70.
“We see the weakness in its share price as an opportunity to accumulate,” added the research house.
At 9.45am, Top Glove was down 73 sen or 10.14% to RM6.47 with 43.1 million shares traded, thus valuing the company at RM53.03 mil. – Nov 17, 2020
