No respite for Top Glove till at least 2025 as it plunges into 4 consecutive quarterly loss

KENANGA Research has reiterated its “underperform” call on Top Glove Corp Bhd while slashing the target price of the world’s largest glove maker to 88 sen (from 90 sen) on the belief that “the current downturn could go down in history as one of the deepest ever”.

Based on the research house’s estimates, the demand-supply situation will only start to head towards equilibrium in 2025 when there is virtually no more new capacity coming on-stream while the global demand for gloves continues to rise by 15% per annum, underpinned by rising hygiene awareness.

“MARGMA (Malaysian Rubber Glove Manufacturers Association) projects 12%-15% growth in the global demand for rubber gloves annually from 2023, following an estimated 19% contraction to 399 billion pieces in 2022. It believes the supply-demand equilibrium will return in six to nine months,” penned analyst Raymond Choo Ping Khoon in a results review.

“However, we beg to differ, expecting the over-capacity situation to persist at least over the next 12 months. We project the demand for gloves to rise by 15% in 2023 which is consistent with MARGMA’s forecast.”

Top Glove has disappointed with a fourth consecutive quarterly loss. Its 9M FY8/2023 net loss of RM463.5 mil has already exceeded Kenanga Research’s full-year net loss forecast of RM450 mil and the full-year consensus net loss estimate of RM461 mil.

Meanwhile Hong Leong Investment Bank (HLIB) Research opined that Top Glove’s recent attempt in raising its average selling prices (ASPs) has negatively impacted its sales volume as glove buyers are still relatively price sensitive at this point by resisting any upward pricing adjustments.

“While costs (ie raw material and fuel) are expected to decrease gradually going forward, we reckon that Top Glove may not be able to fully benefit from these cost reductions as buyers will likely to demand for savings. Therefore, we believe further increase in ASPs is unlikely,” noted analyst Sophie Chua Siu Li.

All-in-all, HLIB Research retained its “sell” rating on Top Glove with its target price lowered to 51 sen (from 53 sen previously).

PublicInvest Research also envisages a challenging near-term outlook for the glove maker with Top Glove expected to remain under pressure given the persistent demand-supply imbalance.

“While the management believes that ASP has bottomed out and has implemented turnaround plan to raise ASP by about 3-5%, we reckon that its ability to do so will be limited by the intense pricing competition from China glove players,” justified analyst Thye May Ting.

Like Kenanga Research and HLIB Research, PublicInvest Research also reiterated its “underperform” rating on Top Glove with a lower target price of 59 sen (from 62 sen previously).

At 11.36am, Top Glove was down 2.5 sen or 2.56% to 95 sen with 19.44 million shares traded, thus valuing the company at RM7.8 bil. – June 19, 2023

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