Demand for gloves to stay positive even if Covid-19 vaccines found

Top Glove’s utilisation rate rose from a pre-Covid level of 85% to above 95% in 3Q20, resulting in greater efficiency and economies of scale

by SHAZNI ONG/ pic by MUHD AMIN NAHARUL

TOP Glove Corp Bhd expects the element of fear factor and mass public embracing the use of protective gear to drive demand for its range of glove products in the next few years.

Top Glove MD Datuk Lee Kim Meow foresees the use of face masks and gloves to grow and drive sales to America, Mexico, Brazil and other Latin American countries.

“The next quarter will be a very strong quarter for us and we believe this momentum will carry on until the end of the year and beyond 2020 as well.

“A lot of customers are booking capacity for fear of losing out. The capacity is booked for next year, so the lead time has increased tremendously,” he said at the group’s third-quarter financial year 2020 results virtual media briefing yesterday.

Lee said government bodies and embassies are prepared to pay a lot more for products such as gloves to protect their citizens.

“Even non-governmental organisations like the World Health Organisation are also spending a lot more money for prevention purposes,” he said.

Lee added that Top Glove will continue to expand its capacity to ensure it is well-positioned to fulfil global glove demand, which is expected to grow from a pre-Covid level of 8%-10% per annum to 12%- 15% per annum post-Covid-19 due to the increased usage in both the medical and non-medical sectors and heightened hygiene awareness.

“Top Glove has earmarked RM3 billion for capital expenditure (capex) to build 450 new lines, creating a new capacity of 60 billion pieces of gloves from calendar year 2020 (CY20) to CY26.

“The Top Glove Innovation Complex at Factory 42 in Banting, Selangor is the group’s new manufacturing and research centre of excellence facility with Phase 1 expected to be completed by the second quarter (2Q) of CY22,” Lee said.

For the 3Q ended May 31, 2020, Top Glove’s financial position improved significantly, with a net cash position of RM279 million compared to net borrowings in 2Q20. This has enabled the group to fund capex requirements.

“Top Glove envisions extremely robust quarters ahead, driven by strong demand growth, high utilisation and additional capacity coming onstream, coupled with a continued focus on innovation, technology, quality, and cost-efficiency.

“With a year’s worth of orders in the pipeline, Top Glove is confident of delivering solid results not only for the full FY20 but for FY21 too,” Lee said.

Earnings for the 3Q surged 365.93% year-on-year (YoY) to RM347.89 million which at the nine- month mark already makes up 95% of FY19’s full-year achievement.

Its 3Q revenue rose 41.85% YoY to a historic quarterly high of RM1.69 billion.

Earnings for the nine months jumped 97.93% YoY to RM575 million and revenue was up 14.26% YoY to RM4.13 billion.

The company announced an interim dividend of 10 sen per share payable on July 9, 2020.

Sales volume of its gloves grew by 25% versus the corresponding period in the previous financial year, as well as the preceding quarter.

“Monthly sales orders went up by some 180%, resulting in long lead times, which went up from 40 days to around 400 days, whereby orders placed now would only be delivered over a year later,” Lee said.

Following the marked increase in glove demand from virtually every country in the world, Top Glove’s utilisation rate rose from a pre-Covid level of 85% to above 95% in 3Q20, resulting in greater efficiency and economies of scale.

“Additional capacity which came onstream in 3Q20 also enabled the group to meet demand growth, while upward revisions in average selling prices in line with prevailing market prices were also affected,” Lee said.

He added that the aggressive organic expansion in its nitrile glove capacity has now placed Top Glove as the world’s largest manufacturer of nitrile gloves, in addition to being the world’s largest manufacturer of natural rubber gloves and surgical gloves.

Top Glove has also emerged the best performing stock on both the Kuala Lumpur Composite Index and the Straits Times Index, having seen its share price increase by 263% and 268% year-to-date respectively.

As of June 10, 2020, it was ranked as the sixth-largest company on Bursa Malaysia and the 12th-largest company on SGX in terms of market capitalisation, placing it among the elite Top 15 companies on both bourses.

Top Glove’s shares closed yesterday at 2.22% or 38 sen lower to RM16.70, valuing at RM44.11 billion.