09 June 2022

Can TOP GLOVE weather the effects of NORMALISATION by falling from the sky?

In less than 2 years' time, Top Glove Corp Bhd's quarterly profit went from a historical high of RM2bil to a mere RM15.3mil in their latest quarter. 😭😭😭

Today, 9 June 2022, Top Glove announced its financial results for the 3QFY2022, delivering quarter-on-quarter growth in Sales Volume, despite prevalent challenging market conditions amidst the normalising trend.

Key highlights here:
  • Sales Revenue for 3QFY2022 amounted to RM1.47 billion and Profit After Tax registered RM29 million.
  • Achieved a 6% improvement in Sales Volume compared with the preceding quarter.
  • Among the challenges faced were:
    • production costs moving upward due to global inflation
    • the Russia Ukraine conflict drove up crude oil prices
    • increases in natural gas and electricity tariffs
    • minimum wage implementation which came into effect 1 May 2022
  • The escalating costs resulted in margin compression, as the Group was unable to fully pass cost through amidst the ongoing oversupply situation.
Regarding the latex prices...
  • For 3QFY2022, the average natural latex concentrate price rose 17% quarter on quarter to RM6.50/kg. 😭
  • Meanwhile, the average nitrile latex price was USD1.11/kg, 3% lower compared to 2QFY2022. 😃

Can give investors a glimpse of hope ah? Here you go...
  • average selling prices (ASPs) are declining at a far slower pace
  • sales to the USA from Malaysia continue to trend higher in 3QFY2022
  • sales to the USA increased by 8% compared with 2QFY2022
What is the outlook going forward?

Top Glove expects the challenging business environment to persist in the near term, but emphasizes the situation is a temporary setback.
Expressing optimism in prospects both for the Group and the sector, Dato’ Lee Kim Meow, Managing Director of Top Glove remarked, “In business, we always take a long term view. Top Glove believes that the outlook for the glove industry is still promising as gloves remain an essential item in the healthcare sector. We are very confident that demand will keep growing with increased usage from emerging markets where the glove consumption base is relatively low, coupled with higher levels of hygiene and health consciousness in a post-pandemic era”.
The Group also recognises that challenges are part of doing business and has successfully weathered several such cycles since commencing operations 31 years ago.

“As external factors are beyond our control, we continue to focus on internal factors, the most fundamental of which is staying fit and healthy, so that we remain sustainable through the toughest of times. This will enable us to prepare for better times ahead”, Dato’ Lee concluded.

Summary of Key Information

How about other major glove players in Malaysia?
  • Hartalega reported a net loss of RM197.9mil in the fourth quarter ended March 31, 2022 (4Q22) from a profit of RM1.12bil a year earlier.
  • Kossan posted a 91% plunge in net profit to RM90mil in 1Q22 ended March 31 from RM1.04bil a year ago.
  • Supermax's net profit in 3Q22 ended March 31, meanwhile, fell 98.71% to RM13mil from RM1.01bil.

Target Price / Fair Value given by various analysts...

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