Maybank Securities analyst Wong Wei Sum has maintained “sell” on Top Glove Corp BVA with a target price of 57 sen, expecting the glove maker’s 3QFY2023 ended May earnings to remain in the red.
While Top Glove has managed to raise its average selling price (ASP) to US$21 per thousand pieces, this has had an impact on both sales volume and plant utilisation rate — especially amid an oversupplied market condition, says Wong. Top Glove’s plant utilisation rate currently stands at about 20% based on 100 billion capacity.
“It seems that further increases in ASP may not be feasible at this point as Top Glove is facing strong resistance from its customers. On a positive note, the company expects demand to pick up significantly in 4Q2023 once destocking activities are over,” Wong adds.
Thus far, Top Glove has decommissioned two old factories with five billion pieces per annum capacity and temporarily shut down another 16 plants with 35 billion pieces per annum capacity. This has led to a significant decrease in Top Glove’s effective capacity, reducing it by 40% to 60 billion pieces from 100 billion pieces previously.
That said, Wong points out that the decommissioning process is unlikely to result in significant impairment loss as the old factories were nearing full depreciation. Meanwhile, operations at the 16 idle glove plants can resume within the next few months once demand picks up.
Currently, Top Glove is prioritising cash flow over profitability. It has also undertaken various cost rationalisation exercises, including consolidating resources to more efficient factories and reducing staff count by 50%. Despite this, Maybank anticipates the low plant utilisation rate to reflect losses on Top Glove’s 3QFY2023 results to be released on June 16.
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As at 11.42am, shares in Top Glove are trading at 31.5 cents on the Singapore Exchange and RM1.08 on Bursa Malaysia.
