UOB Kay Hian
June 30, 2025

Top Glove Faces Weak Quarter but Eyes Recovery as US Demand Picks Up: Comprehensive Financial Review and Outlook

Overview: Navigating a Challenging Market Landscape

Top Glove Corporation Bhd, a global leader in latex glove manufacturing, reported a challenging 3QFY25, grappling with softer US demand and intensifying competition, particularly from Chinese producers in Europe. Despite posting core losses for the quarter, management projects a robust turnaround in 4QFY25, anticipating a 15-20% quarter-on-quarter (qoq) volume sales surge as US distributors normalize inventory levels. The company’s strategic guidance and operational resilience are poised to drive a progressive earnings recovery in the coming quarters.

Stock Profile and Performance Snapshot

• Share Price: RM0.72
• Target Price: RM0.79 (previously RM0.84)
• Upside Potential: +9.7%
• Market Cap: RM5,772.8 million (US\$1,367.2 million)
• Shares Issued: 8,017.8 million
• 52-Week High/Low: RM1.44 / RM0.70
• Top Shareholders: Tan Sri Lim Wee Chai (27.9%), Central Depository Pte Ltd (11.3%), KWAP (7.7%)

3QFY25 Financial Results: Weak Quarter Amid Market Headwinds

Top Glove turned to core losses in 3QFY25, mainly due to a temporary weakness in US demand and fiercer competition in Europe. The company’s revenue decreased 6% qoq to RM830.3 million, despite a 4% increase in sales volume. The average selling price (ASP) dropped 4.5% qoq, pressured by aggressive Chinese competition and a softer MYR/USD rate, which fell 1.7% qoq.

• EBITDA margin fell to 10.4% (down 3.3ppt qoq, up 4.4ppt yoy).
• Core net losses of RM2.3 million (from 2QFY25’s RM23.3 million profit) were below analyst expectations.
• Exceptional item of RM37 million in 3QFY25.

Key Financials and Ratios

Operational Insights: Mixed Signals, but Recovery Ahead

• 3QFY25 volume sales rose 5% qoq, signaling modest demand recovery.
• ASP contracted 5% qoq to about US\$19/1,000 pieces, mainly due to Chinese competition.
• Raw material costs declined 1% qoq per carton, partially offsetting margin pressures.
• Utilization rate improved to 61% (from 58% in 2QFY25), with current effective capacity at 64 billion pieces annually.

Forward Guidance: Signs of Market Normalization

• Management expects a 15-20% volume sales improvement in 4QFY25, with utilization rate already at 65% in June.
• US distributors’ overstocked inventories are nearly depleted, priming the company for a surge in orders and improved ASPs.
• US tariffs on Chinese medical gloves (80% in 2025, rising to 130% in 2026) give Malaysian producers a competitive edge (Malaysia’s tariff: 10%).
• China’s aggressive pricing in Europe is expected to cap ASP upside for Malaysian producers in non-US markets, but rising US orders should offset this.

Competitive Positioning and Cost Management

• Top Glove’s breakeven cost for generic nitrile gloves is US\$14-15 per 1,000 pieces, matching Chinese competitors.
• Recent redemption of perpetual sukuk and reduced borrowings have lowered the gearing ratio to 0.1x (from 0.85x in FY19).
• Improved operating cash flow and stronger balance sheet expected in upcoming quarters.

Earnings Revision and Valuation

• FY25-26 earnings forecasts have been cut by 48% and 8% respectively, reflecting lower volume and ASP assumptions (US\$21-22/1,000 pieces for FY25-27).
• Downgraded to HOLD with a lower target price of RM0.79 (from RM0.84), representing 19x 2026F PE (1 standard deviation below mean).

Environmental, Social, and Governance (ESG) Commitments

• Environmental:
  • Water management: Targeting a 34% reduction in municipal water consumption intensity by FY25.
  • Energy management: Aims to reduce electricity and natural gas consumption intensity by 26% and 25% respectively by 2025.
• Social:
  • Human rights: Verified as free of all 11 International Labour Organisation forced labour indicators by independent third-party review.
• Governance:
  • Gender diversity: 42% of the board of directors are female.

Key Assumptions for FY25-27

Profit & Loss, Balance Sheet, and Cash Flow Highlights

Conclusion: Downgraded but Poised for Earnings Recovery

While Top Glove experienced another weak quarter, the company’s operational improvements and anticipated rebound in US demand position it for a progressive recovery in FY25-26. Despite ongoing headwinds from global competition and pricing pressure, Top Glove’s efficiency initiatives, cost management, and enhanced ESG credentials underscore its resilience and potential for long-term value creation. Investors are advised to maintain a HOLD stance, with a revised target price of RM0.79, awaiting clearer signs of sustained earnings momentum.