Maybank IB Research projected Top Glove would turn around by 4Q24, underpinned by better plant utilisation rates and ASP.
PETALING JAYA: Top Glove Corp Bhd
is expected to see a turnaround in its operations in the next few months amid an improving market environment.
According to analysts, expectations that the world’s largest glove maker will return to operational profitability within the short term are supported by increasing global demand for gloves and rising average selling prices (ASP) of its products.
In its report, UOB Kay Hian Research (UOBKH Research) said Top Glove could take another one to two quarters to turn around its core losses even though the sector’s trend of improving operating statistics and the recent precipitous tariff hikes by the United States on China’s medical-grade gloves might be sufficient to allow Top Glove’s intrinsic valuations to be re-rated.
Earlier last month, Washington announced steep tariff hikes on an array of Chinese imports including medical goods as part of a broader strategy to fuel domestic production and safeguard against supply shortages seen during the Covid-19 pandemic.
However, Reuters reported that industry executives said tariffs are unlikely to boost the competitiveness of US producers, as Chinese firms could reroute shipments via overseas supply chains, and suppliers from other countries such as Malaysia could seize this opportunity.
“Although yet to turn around core losses, Top Glove’s progressive operating matrixes refinement and recent deterioration of US-China trade tensions may continue to catalyse the group’s reversion to pre-pandemic profitability,” the research house said.
“We expect Top Glove to deliver sequentially stronger earnings in 2024-2025, mainly led by a demand recovery, improving margins amid cost efficiency and better capacity utilisation,” it added.
UOBKH Research maintained its “buy” call on Top Glove, with an unchanged target price of RM1.28.
Top Glove reported an operational loss of RM34mil for the third quarter (3Q) ended May 31, 2024, although overall, it reported a net profit of RM51mil for the quarter in review, which was due mainly to gains from disposal of land.
Its revenue increased 16% quarter-on-quarter (q-o-q) and 20% year-on-year to RM637mil for 3Q24.
Maybank Investment Bank Research (Maybank IB Research) projected Top Glove would turn around by 4Q24, underpinned by better plant utilisation rates and ASP.
“Top Glove expects sales to trend up further in the coming quarters. It is reopening some idle plants and refurbishing another that was previously shut down or halted due to poor glove demand,” the research house said, adding that this would raise the company’s effective annual capacity to 63 billion gloves from 60 billion now.
Besides improving sales volumes and ASP, Maybank IB Research noted that Top Glove’s margin is also expected to improve in the coming quarters due to the reactivation of a cost pass-through mechanism driven by strong demand for gloves and tight supply.
Maybank IB Research reiterated its “buy” call on Top Glove, with a higher target price of RM1.43, up from RM1.21 previously.
Public Investment Bank Research, however, was less optimistic, maintaining its “neutral” stance on the counter with a target price of RM1.15.
“Though recent demand has displayed some signs of improvement, we believe the operational landscape will still be challenging as we expect limited upside on the growth of ASPs,” the research house said.
Meanwhile, Kenanga Research said that massive glove overcapacity would continue to weigh on the sector overall.
As such, the brokerage kept its “underperform” call on Top Glove and target price at 75 sen.
“The group expects the current challenging operating environment to persist and only expects a likelihood of a meaningful recovery to take place sometime in 2025,” Kenanga Research said.
“We expect the operating environment to remain challenging in subsequent quarters, plagued by massive oversupply,” it added.
Based on Kenanga Research’s estimates, the demand-supply situation would only start to head towards equilibrium in 2026 when there is virtually no more new capacity coming onstream while the global demand for gloves continues to rise by 15% a year underpinned by rising hygiene awareness and replenishing of stocks.
TA Research has a “sell” call on Top Glove with a target price of RM1.03.
The research house said despite Top Glove’s guidance for stronger growth in volume and improving ASP, the group’s current sales volumes were still 50% lower than pre-pandemic levels.
