Covid-19 outbreak disrupts Top Glove production

by NUR HANANI AZMAN / pic by ARIF KARTONO

THE Covid-19 outbreak among Top Glove Corp Bhd’s production workers will result in delays of its rubber glove deliveries to customers for up to four weeks, with orders taking longer than normal.

Production at the world’s largest maker of rubber gloves is affected with the temporary closure of up to 28 plants in Klang for sanitisation.

The company said the mass infections will reduce its annual sales by about 3% for the financial year 2021 (FY21).

Top Glove wishes to assure our customers that we are working closely with the authorities through this period – Pic by Razak Ghazali

“We have temporarily stopped production of 16 of our facilities in Meru, Klang, beginning Nov 17, 2020, to date, with the balance 12 facilities operating at much reduced capacities.

“To minimise the impact on our customers, we are allocating sales orders to unaffected factories and rescheduling deliveries where possible,” it said in a statement yesterday.

Top Glove has lost some RM12.87 billion in market capitalisation since mid-September.

Its share price dropped 7.48% or 55 sen to RM6.80 yesterday, wiping out some RM4.43 billion in market value. The company’s market capitalisation was valued at RM68.6 billion in mid-September, but has steadily declined on optimism of a vaccine being introduced soon, settling at RM55.73 billion at close yesterday.

The company said the government imposed the Enhanced Movement Control Order on its foreign worker dormitories in Meru, last week which affected 5,700 workers.

“Top Glove wishes to assure our customers that we are working closely with the authorities through this period towards ensuring the continued safety and wellbeing of our employees and local community, which remains our utmost priority,” it said in a statement released yesterday.

Top Glove has 41 factories in Malaysia and four in Thailand, as well as one each in China and Vietnam producing 90 billion rubber gloves a year.

Analysts have slashed earnings forecast for the company. Hong Leong Investment Bank Bhd (HLIB Research) analyst Farah Diyana Kamaludin reduced Top Glove earnings forecast by 5.6% for FY ending Aug 31, 2021, to reflect the temporary disruption due to the closing of factories.

“This prudently assumes all the 19 affected factories (which are glove factories) will be closed for one month. A quicker resolution timeline would present an upside to our revised earnings forecast.

“Despite Top Glove is said to be ramping up production in its other factories, however, as most factories are already running close to full capacity, we reckon it would be tough to make up for the shortfall from the affected factories.”

While maintaining the ‘Buy’ call, HLIB Research’s target price for Top Glove was lowered to RM10.38 from RM10.95.

CGS-CIMB Securities Sdn Bhd estimates that Top Glove’s Klang factories contribute up to 50% of its total current production capacity.

“Assuming that all 28 plants in Meru, are not operational for a duration of two weeks, we estimate that the impact on our FY21F net profit forecast will be -1.9%.

“Note that for every week that all 28 plants are non-operational, our FY21F net profit estimate for Top Glove will be reduced by another 0.9%,” it said in a note.

Meanwhile, analysts also expect Top Glove competitors to benefit if closures prolong at its manufacturing plants in Klang.

So far, 5,767 workers have been tested and 2,534 are positive cases.

The Covid-19 positive workers have been sent to hospitals, while the rest are under quarantine in the company’s newly built apartment and hotels nearby.

The cost of testing is RM150 per worker, and is fully borne by the Social Security Organisation.

Meanwhile, Top Glove is still awaiting confirmation from the authorities on the date of resumption of operation.

To reduce the reliance on foreign workers, Top Glove has been employing local workers as early as March 2020. Presently, out of the 13,700 workers in Malaysia, about 2,000 are local workers.

The company is planning to increase the intake of local workers to overcome labour shortages.