Top Glove to gain from potential Mah Sing glove business deal

by ANIS HAZIM / pic by TMR

PUBLIC Investment Bank Bhd (PublicInvest) stated that Top Glove Corp Bhd’s rumoured move to acquire Mah Sing Group Bhd’s glove business is consistent with the rubber glove maker’s long-term strategy.

PublicInvest added that Top Glove aims to achieve a glove production capacity of 201 billion pieces per annum by December 2025.

The investment bank believes a fair acquisition cost is important in determining whether the addition is justifiable. 

“In order to build a similar capacity as Mah Sing Healthcare (Sdn Bhd), we estimate Top Glove would have to spend RM175 million in capital expenditure (capex),” the bank noted in a report on Top Glove today.

PublicInvest views a price tag of equal or less than RM175 million will be value accretive to Top Glove. 

Mah Sing ventured into glove manufacturing business under Mah Sing Healthcare in 2020 with a manufacturing factory of 228,000 sq ft (21,181.9 sq m) located in Kapar, close to Top Glove’s factory.

In the first phase, the glove manufacturing business commissioned 12 production lines in May 2021 with an annual production capacity of 3.68 billion.

The second phase is expected to double the annual production capacity to 7.4 billion pieces, the report noted.

Mah Sing Healthcare has successfully obtained certificates from governing bodies in major glove-importing countries and regions including but not limited to 510,000 from the US Food and Drug Administration.

“Given the current short-term headwinds faced by the industry, we feel there is little urgency to acquire capacity unless valuation is attractive and undemanding, though we note the proximity of Mah Sing Healthcare is strategic to Top Glove’s existing facility,” PublicInvest added.

The bank opined the acquisition should help to save on transportation and logistical costs. 

“Based on our estimates, the additional 3.68 billion capacity could contribute RM21 million to Top Glove’s bottom line or 3% of the financial year of 2023 net profit, assuming normalised average selling price, utilisation rate and profit margin,” it added.

The long-term outlook for Top Glove remains positive as glove consumption in the emerging markets is expected to increase supported by the low per capita consumption amid heightened hygiene awareness.

“We make no adjustment to our earnings forecast at this juncture and maintain our `Neutral’ call on Top Glove with an unchanged target price of RM1.48,” it further said.


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