Top Glove continues to gain from Covid-19, says report


TOP Glove Corp Bhd continues to be one of the few beneficiaries of the Covid-19 pandemic, with analysts expecting the rubber glove maker’s sales volumes to surge amid high demand for gloves.

“The group has been operating at a 90% utilisation rate versus 86% in the second quarter ended February 29, 2020 (2Q20).

“Besides that, lead times have improved to four months from two months previously, while the average selling price has been revised upwards by 4% to 5%,” TA Securities Holdings Bhd said in a recent report.

Last week, Malaysian Rubber Glove Manufacturers Association urged the government to allow glove manufacturers to run at full capacity during the Movement Control Order period compared to the current 50% operating load.

“The group’s total capacity is expected to increase to 81.6 billion gloves per annum by end-2020, an increase of 11.2% from the current capacity of 73.4 billion gloves per annum,” TA Securities added.

It reiterated a ‘Sell’ call on the company and maintained its target price (TP) of RM5.69 per share.

Top Glove’s earnings rose 9.3% year-on-year (YoY) to RM115.68 million in 2Q20, mostly supported by tax incentives and stronger sales volume.

For the first half ended Feb 29, 2020, the group’s net profit climbed 5.2% YoY to RM227.1 million, which TA Securities said was in consensus with the estimated full-year forecast. The improvement was due to the lower effective tax rate.

Meanwhile, JF Apex Securities Bhd upgraded its call on Top Glove to ‘Buy’ with a higher TP of RM6.50 (previously RM4.73), after revising upwards its earnings forecast for the glove manufacturer as demand for its products stays resilient.

“We revise upward our financial year ending Aug 31, 2020 earnings forecasts by +4.7% to RM487.6 million from RM465.4 million on the expectation of a strong US dollar against the ringgit to persist in the next few months,” it wrote in a note.

It also said Top Glove’s expansion plans come at the right time, as its two new plants will add an extra 24 lines or 3.2 billion capacity to the existing production lines.

The current 711 production lines, or capacity to make 73.4 billion pieces, is believed to cater to strong demands from the US and Europe due to the rapid transmission of Covid-19.

The group’s RM1.3 billion sukuk issuance on Feb 22, 2020, will be utilised for its future expansion plans.

“We opine that gearing up by issuing perpetual bonds during the low-interest rate environment is encouraging for the group as it will strengthen its balance sheet with a higher equity base by 55% YoY to RM3.98 billion from RM2.54 billion.

“Likewise, the group’s net gearing is reduced to 0.24 times,” the research firm said.

Risks to its call include lower than expected demand for gloves and possible Covid-19 infection among the glove maker’s labour force that might disrupt production.

Shares of Top Glove fell 2.55% or 16 sen to close at RM6.11 yesterday, valuing the firm at RM15.66 billion.