SINGAPORE (Dec 18): AmInvestment Bank is keeping its “buy” call on Top Glove Corporation, despite continued headwinds for the world’s largest rubber glove manufacturer.
Top Glove saw its earnings edge 1.2% higher to RM111.4 million ($36.4 million) for 1QFY2020 ended November, even as revenue slipped 4.2% to RM1.21 billion on lower average selling prices (ASP) and lower average raw material prices.
In its results announcement on Dec 17, Top Glove noted that the nitrile glove delivered strong sales volume growth of 20% and significantly higher contributions to group profit.
However, the better performance was offset by weaker contributions from the natural rubber and the vinyl glove segments.
See: Top Glove posts 1.2% rise in 1Q earnings to $36.4 mil
“ASP remained subdued for both nitrile and latex gloves due to increased competition, which has placed downward pressures on selling prices,” says analyst Nafisah Azmi in a Dec 18 report. “Moving forward, we believe that Top Glove will continue to face pressures on operating profit margins.”
Nafisah points out that nitrile and latex glove supply by top rubber glove producers in Malaysia and Thailand is forecast to increase by 14.2% in CY2020 – exceeding the organic demand growth expectation of 8–10%.
“This will be further aggravated by higher labour cost in CY20F following the 9.1% upward revision in minimum wage (in Malaysia),” she adds.
Already, Top Glove is adding more automation and digitalisation initiatives, which will improve production efficiency and reduce dependence on human labour.
"We believe improved production efficiency, higher automation and reduced natural gas price from January 2020 onwards will help mitigate margin pressures from weaker selling prices,” Nafisah says.
As at 4.41pm, shares in top glove are trading 7 cents higher, or up 4.7%, at $1.55.
