UOBKH Research said it remains optimistic on Top Glove’s prospects over a medium-term horizon.
PETALING JAYA: Top Glove Corp Bhd
’s operating metrics are seeing visible signs of recovery despite anticipating short-term headwinds due to an unprecedented weakening of the US dollar.
More importantly, the recently revised US tariff hike on medical gloves from China is poised to catalyse meaningful flowback of demand to Malaysian glove makers, said UOB Kay Hian (UOBKH) Research.
It remains optimistic on Top Glove’s prospects over a medium-term horizon.
The research house maintained its “buy” call on the stock with a target price of RM1.45 a share.
UOBKH Research added Top Glove’s sales are mainly denominated in US dollar and the recent strengthening of the ringgit against the US dollar is expected to weaken the group’s earnings in the next two quarters, namely the fourth quarter of financial year 2024 (4Q24) and 1Q25.
It noted the rubber glove maker has a natural hedge as 45% to 50% of its production costs comprising raw material and chemicals are also in US dollars. It expects Top Glove to pass through some costs to customers via higher average selling price (ASP).
Nevertheless, it is undeniable that such drastic foreign exchange movement will impact the group’s net profit, which is expected to be in the range of 8% to 10% in the next two quarters. Its 2025 to 2026 prospects remain bright.
Following the depletion of distributor’s excess inventory since the second half of 2023, the industry’s operating matrixes such as volume sales, utilisation rate, ASP and margins have all seen sequential quarters of improvement.
The higher revised US tariff on Chinese gloves will likely push US distributors to stop importing medical gloves from Chinese manufacturers from November this year onwards and Top Glove has been receiving queries and orders from large-scale US distributors.
Top Glove plans to raise the ASP for its US nitrile gloves export and the absence of Chinese competition will largely benefit countries like Malaysia and Thailand (mainly latex) who are major exporters of medical gloves.
UOBKH Research stated in order to raise production capacity to 75 billion pieces, Top Glove would need to hire around 1100 workers which will lift the total workforce to 12,000 from the current 11,000 levels. It is recruiting around 200 new workers per month in anticipation of strong demand recovery.Top Glove’s monthly sales volume improved to 2.4 billion to 2.8 billion pieces in June to August this year, pushing its utilisation rate to about 50% in 3Q24.
Sales volume in September to October this year will further improve to 3.5 billion pieces/month (utilisation rate: 66%-70%).
The previously elevating raw material prices caused by bad weather and supply constraints have softened from May onwards.
