Top Glove’s Financial Outlook: An In-Depth Analysis

Date: December 23, 2024

Broker: Maybank Investment Bank Berhad

Overview of Top Glove’s Recent Performance

Top Glove, the world’s largest glove manufacturer, has been navigating through a challenging financial landscape. The company’s 1QFY25 results, while still reflecting a net loss, showed a significant reduction in losses compared to the previous fiscal periods. The core net loss for 1QFY25 stood at MYR5.8 million, a notable improvement from the MYR61 million and MYR26 million net losses recorded in 1QFY24 and 4QFY24, respectively.

Operational Improvements and Future Expectations

During the first quarter of FY25, Top Glove saw an improvement in its plant utilization rate, which increased to 66% from 60% in the preceding quarter. Despite this operational enhancement, the company’s blended average selling price (ASP) experienced a slight decline of 2% quarter-on-quarter. Nevertheless, Top Glove remains optimistic about turning its fortunes around in FY25, relying on expected improvements in sales volume and ASP.

Key Highlights from the 1QFY25 Results Conference Call

The company reported a 16% increase in sales volume quarter-on-quarter, although ASP fell by 2%. Top Glove anticipates a rise in ASP to between USD21 and USD22 per thousand pieces by March 2025, as stockpiles prepared before the higher US tariffs on China-made gloves are depleted. Management projects a shift in orders from the US to Malaysia due to these tariffs, spurring further sales growth.

Top Glove plans to expand its capacity from 64 billion to 70 billion pieces per annum by reopening idle plants, with a current utilization rate of 70%. Additionally, the company aims to venture into Vietnam, focusing on producing both natural rubber and nitrile gloves.

Challenges in Non-US Markets

Despite maintaining its earnings forecasts, Maybank Investment Bank expressed concerns over Top Glove’s significant exposure to non-US markets, which contributed to 82% of the company’s sales volume in 1QFY25. This is a slight decrease from the pre-pandemic level of 76%. The bank anticipates that Chinese competitors will redirect their US sales to these non-US markets starting January 2025, potentially impacting Top Glove’s market share.

Financial Projections and Market Position

Maybank Investment Bank reiterated a “SELL” recommendation for Top Glove, with a target price of MYR1.08, representing a 17% downside from the current share price of MYR1.32. The bank’s analysis is based on the assumption that the current market price already reflects the positives of Top Glove’s future prospects.

Top Glove’s financial metrics for FY25 include a projected revenue of MYR4,486 million, EBITDA of MYR542 million, and a core net profit of MYR124 million. The company is expected to maintain a net cash position through FY27, with no anticipated long-term interest-bearing debt.

Conclusion

Top Glove’s financial outlook for FY25 is cautiously optimistic, with expected improvements in sales volumes and ASPs amidst operational enhancements. However, the company’s significant exposure to non-US markets poses a risk, particularly with potential shifts in market dynamics due to US tariffs on Chinese-made gloves. Investors are advised to consider these factors carefully, in line with Maybank Investment Bank’s “SELL” recommendation.

For more insights into Top Glove’s financial performance and future strategies, stay tuned for further updates from Maybank Investment Bank Berhad.