For its second quarter ended Feb 28, 2023 (Q2 FY2023), the group posted a net loss of RM164.7 million from a net profit of RM87.55 million a year ago, translating to a loss per share of 2.1 sen.
This was the group’s third consecutive quarterly loss.
Hong Leong Investment Bank (HLIB) and MIDF Research reiterated their ‘sell’ calls today, with target prices (TP) of 58 sen and 55 sen respectively.
Kenanga Investment Bank Bhd trimmed its target price to 58 sen from 60 sen, maintaining their “underperform” call.
Bloomberg data showed 16 sell calls, five hold calls and one buy call on Top Glove, with a 12-month TP of 66 sen.
The lowest TPs of 45 sen came from JPMorgan and TA Securities Research, whilst the highest TP of RM1.05 came from HSBC.
“(Top Glove’s) net loss of RM333 million in H1 FY2023 (was disappointing) compared to our full-year net loss forecast of RM356 million and the full-year consensus net loss estimate of RM303 million,” said Kenanga.
As such, it has widened its FY2023 net loss forecast by 26% to RM450 million (from RM356 million) but maintained forecasts of net profit for 2024.
“On yearly basis, the revenue plunged -57.4% y-o-y (year-on-year) to RM618 million, owing mostly to underperformance in all geographical divisions, notably Malaysia, Thailand, China, and others,” said MIDF.
In addition, the higher cost of natural gas (up 17% quarter-on-quarter/q-o-q), and electricity tariff have raised the manufacturing cost per unit and squeezed margins, it noted.
Scepticism on impact of higher ASPs
The average selling price (ASP) of gloves fell 4% overall q-o-q, with Top Glove announcing their intentions to begin raising ASPs to cover increasing costs of production.
The price hike was slated to take effect in February 2023 and will be reflected in shipment orders placed between March and April 2023.
During a media and analysts briefing yesterday, Top Glove’s senior management expressed confidence the market would not engage in price cutting.
“When you are losing money, (why would) you want more market share? Whether or not (competitors) increase price, we (will) increase our price first,” stressed executive chairman Lim Wee Chai.
However, research houses do not seem to share the same optimism.
“We gather that certain local and Chinese glove makers have implemented cost-pass-through mechanisms to alleviate the impact of higher input costs,” said MIDF.
“Hence, we are cautiously optimistic about the success rate of price adjustment, but we think that the room for price increase is limited due to the continued glove oversupply problem,” it added.
Concerns about the impact of the price hike are shared by Kenanga and HLIB, which remarked that whilst it would not return the group to profitability, it could support margins.
Rakuten Trade Sdn Bhd vice-president of equity research Thong Pak Leng said selling pressure may continue.
“Meanwhile, China’s manufacturers are still undercutting by selling as low as US$15 to US$17 (RM67.35 to RM76.34) per 1,000 pieces, compared with US$18 to US$20 (RM80.83 to RM89.80) for local players.”
“We do not expect to see any good news till the end of the year,” Thong told a business portal.
Opposing views on recovery speed
The Malaysian Rubber Glove Manufacturers Association (Margma) has projected a 12%-15% growth in the global demand for rubber gloves annually from 2023.
Based on this estimate, Margma expects supply-demand equilibrium would return in six to nine months.
However, Kenanga is less optimistic and expects the overcapacity situation to persist for another two years.
“Based on our estimates, the supply-demand situation will only start to head towards equilibrium in 2025 when there is virtually no more new capacity coming onstream,” it said.
Kenanga’s projection for demand to rise by 15% is in line with Margma’s, but noted that it will do little to ease overcapacity.
This is because global glove production capacity will grow another 16% to 595 billion pieces during the year, resulting in excess capacity rising by 22% to 137 billion pieces from 112 billion pieces in 2022.
Top Glove’s share price closed 9.58% or 8 sen higher to 92 sen today, giving it a market capitalisation of RM7.46 billion.