CONCERNS over the likelihood of oversupply for gloves post-COVID-19 – especially with the advent of ample vaccine supply – remains very much a speculation at best.
A recent webinar hosted by AmInvestment Bank with Top Glove Bhd and institutional investors has revealed three keys issues that need to be addressed before a glove manufacturing facility can be operational:
- The availability of contractors to build production lines;
- Shortage of foreign workers; and
- Constraint of nitrile raw material.
Against such backdrop, the world’s biggest glove producer expects demand for gloves to remain robust especially with the COVID-19 pandemic having raised much awareness on personal hygiene which resulted in a higher usage of gloves.
“In developing countries, the usage of gloves is increasing with a wider adoption of gloves usage from non-medical industries such as food & beverage (F&B), services and retail, among others,” wrote AmBank Research Thong Pak Leng in a company update.
In a related development, the research house noted that Top Glove has allocated 30% of its capacity for nitrile glove spot orders which have been fully sold for the next three months.
“Meanwhile, the spot orders for natural rubber powder-free gloves are also increasing due to the long lead time of nitrile gloves,” Thong pointed out.
At present, Top Glove has a total production capacity of 90 billion pieces per annum. The company has allocated a capex of RM10 bil over the next five years for capacity expansion to double its current capacity by end-2025.
“This will be done in stages whereby 14 billion pieces will be added for FY2021 and 16 billion for FY2022,” the company disclosed.
All-in, AmBank Research opined that while demand for gloves will remain stable post-COVID-19 it expects average selling price (ASP) to decline as there is no longer a rush for gloves compared to the initial stage of the pandemic.
“We reckon that ASP will stabilise at a higher level than the pre-pandemic level due to the broader usage of gloves,” projected the research house.
It maintained its “hold” recommendation for Top Glove with a lower fair value of RM7.88 (previously RM8.40).
At 2.32pm, Top Glove was down 1.65% at RM7.73, thus valuing the company at RM63.34 mil. – Nov 12, 2020
