THE world’s largest glove maker by volume Top Glove Corp Bhd has reported a net profit of RM50.67 mil for the third quarter ended May 31, 2024 (Q3 FY2024), marking a significant turnaround from a net loss of RM130.59 mil in the same period last year.
This recovery was driven by a gain of RM54.34 mil from the disposal of property, plant, and equipment, alongside an unrealised foreign exchange gain of RM22.33 mil.
Despite this positive quarter, the group’s performance for the first nine months of FY2024 (9M FY2024) still reflects a challenging year, with a net loss of RM58.24 mil, albeit an improvement from the previous year’s loss of RM463.49 mil. Revenue during this period fell by 5.6% to RM1.68 bil from RM1.78 bil a year earlier.
However, analysts remain cautious about the sustainability of this recovery.
Kenanga Research has maintained its “sell” and “underperform” ratings for Top Glove, with a target price of 75 sen. The research house highlighted the ongoing overcapacity in the glove sector, leading to low prices and depressed plant utilisation expected to continue throughout CY2024.
“The group expects the current challenging operating environment to persist and only expects a likelihood of a meaningful recovery to take place sometime in 2025.
“We expect the operating environment to remain challenging in subsequent quarters, plagued by massive oversupply,” the research house said.
Kenanga Research noted that a significant recovery in the operating environment is unlikely before 2025. They predict the demand-supply situation to approach equilibrium only by CY2026, driven by the cessation of new capacity additions and a steady 15% annual growth in global glove demand.
Similarly, Phillip Capital has retained its “sell” call on Top Glove, setting a target price of 60 sen—a 48.3% discount to the current share price of RM1.16, which values the group at RM9.5 bil.
Phillip Capital noted that the group’s latest results accounted for 86% of their prior loss forecast of RM158 mil and 95% of the consensus loss estimate of RM144 mil.
Contrarily, RHB Investment Bank has a more optimistic outlook, maintaining its “buy” rating for Top Glove with a slightly adjusted target price of RM1.28, down from RM1.32.
“Order volumes are set to pick up further (management guided for 20%-25% quarter-on-quarter growth in Q4 FY2024) on top of the three billion gloves added capacity, which should start running this month,” it said in a note yesterday (June 20).
RHB also noted the potential stabilisation of natural latex prices and a prospective 3% reduction in the natural gas tariff during the upcoming review period in July.
“With industry operating dynamics turning favourable, we expect a stronger second-half performance from glove makers, underpinned by demand recovery, gradually subsiding price competition from Chinese makers, and customers being more receptive to average selling price (ASP) increases,” RHB added.
Despite the contrasting views, it is clear that while Top Glove has shown a return to profitability, the road to a sustained recovery in the glove sector remains fraught with challenges. – June 21, 2024
