TOP Glove Bhd could be hit by as much as RM15 mil in fines for violation of the Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446).
CGS-CIMB Research made the assumption on the basis that the world’s largest glove maker has 300 worker accommodations and each is slapped with RM50,000 per offence.
“At this juncture, we are unable to ascertain the impact of the Ministry of Human Resources (MoHR) charges on Top Glove,” commented analyst Walter Aw in a company update.
“This is pending further details such as number and type of charges to be filed against the company.’
The MoHR highlighted yesterday that it has opened 19 investigation papers against six companies related to Top Glove following enforcement operations in five states, namely Perak, Kedah, Kelantan, Negeri Sembilan and Johor, amid the spread of COVID-19 in the Teratai Cluster.
The Ministry claimed that Top Glove’s main offence was its failure to apply for an accommodation certificate from the director-general of the Department of Labour of Peninsular Malaysia under Section 24D of the act, which led to the discovery of other offences, including dense, uncomfortable accommodation and lack of proper ventilation.
In a statement, Top Glove has stated that it has been gradually increasing the number of housing location for its workers. This includes recent efforts to spend RM20 mil to purchase up to 100 units of apartments for its workers in the past two months.
This is in addition to its previous investment of up to RM50 mil to set up 1,000 double-storey houses and hostels with various facilities.
“However, we understand that MoHR has yet to specify how many charges will be filed against Top Glove,” Aw pointed out.
“We understand that Act 446 came into effect on Sept 1. Note that MoHR had earlier highlighted that the government will adopt an educational approach until December 2020.”
Awaiting further update on the matter, CGS-CIMB Research has maintained its “add” call on Top Glove with a target price of RM10 based on 17 times the company’s CY2022F price-to-earnings ratio (in line with its five-year historical mean).
“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,” noted the research house.
Its potential re-rating catalysts for Top Glove include (i) swift resolution of the US Customs and Border Protection ban placed on two of Top Glove’s subsidiaries; (ii) better-than-expected demand for gloves; and (iii) higher-than-expected rise in selling prices for gloves.
“The downside risks are (i) a surge in confirmed COVID-19 cases among its workers; (ii) discovery of a cure/vaccine for COVID-19; and (iii) a sharp decline in average selling prices of gloves.
At 9.55am, Top Glove was down 9 sen or 1.33% at RM6.70 with 20.67 million shares traded, thus valuing the company at RM54.92 bil. – Dec 2, 2020
