The world’s largest glove maker by volume posted a net profit of RM50.67 million for the third quarter ended May 31, 2024 (Q3 FY2024) from a net loss of RM130.59 million a year ago. This was primarily due to a gain of RM54.34 million from the disposal of property, plant and equipment, and RM22.33 million from unrealised foreign exchange gain.
For the first nine months of FY2024 (9M FY2024), Top Glove was still mired in the red but with a narrower net loss of RM58.24 million from RM463.49 million previously. Revenue fell 5.6% to RM1.68 billion from RM1.78 billion a year earlier.
Research houses are usually quick to point out that one swallow does not make a summer. In this case, they remain unconvinced that the group has turned the corner as underlying problems afflicting the glove sector are still unresolved.
Kenanga Research maintained its “sell” and “underperform” calls on Top Glove with a target price (TP) of 75 sen.
The glove sector’s overcapacity means low prices and depressed plant utilisation will continue to plague the industry in CY2024, it said in a note yesterday.
“The group expects the current challenging operating environment to persist and only expects a likelihood of a meaningful recovery to take place sometime in 2025.
“We expect the operating environment to remain challenging in subsequent quarters, plagued by massive oversupply,” the research house said.
Kenanga expects the demand-supply situation to only start “heading towards equilibrium” in CY2026 when there is virtually no more new capacity coming onstream while the global demand for gloves continues to rise by 15% per annum.
Target price drop
Meanwhile, Phillip Capital has kept its “sell” call on Top Glove with a TP of just 60 sen, a huge 48.3% discount to the current share price of RM1.16, which values the group at RM9.5 billion. Year-to-date, the counter has risen 27.5%.
It said the group’s results accounted for 86% of its previous loss forecast (-RM158 million) and 95% of consensus’ loss estimate (-RM144 million).
RHB Investment Bank has a bullish view of Top Glove’s prospects, maintaining its “buy” call but with a lower TP of RM1.28 from RM1.32 previously.
“Order volumes are set to pick up further (management guided for 20%-25% quarter-on-quarter growth in Q4 FY2024) on top of the three billion gloves added capacity, which should start running this month,” it said in a note yesterday.
It said the group also expects natural latex prices to stabilise in the coming quarter while the natural gas tariff could potentially be reduced by 3% during the next tariff review period in July.
“With industry operating dynamics turning favourable, we expect a stronger second-half performance from glove makers, underpinned by demand recovery, gradually subsiding price competition from Chinese makers, and customers being more receptive to average selling price (ASP) increases,” RHB added.
Good times coming back?
Lim, 66, established Top Glove with his wife Tong Siew Bee in 1991 and, within a decade, transformed it into one of the world’s largest producers of rubber gloves, becoming a billionaire in the process.
His is the classic rags to riches story. He was born and raised in a nondescript Chinese new village in Jelebu, Negeri Sembilan. His parents ran a rubber trading business, and he would help out in the rubber estate during weekends.
He graduated with a bachelor of science degree in physics in 1982 from Universiti Malaya and then worked as an air conditioner sales executive in OYL Industries, an air conditioner manufacturer. He subsequently obtained a masters of business administration in 1985 from Sul Ross State University in Texas, US.
The past three or so years have been a roller-coaster ride for Lim.
He set up Top Glove to capitalise on surging global demand for rubber gloves driven by the AIDS epidemic. Ironically, it was another health crisis – the Covid-19 pandemic in early 2020 – that would catapult the glove maker to the stratosphere.
With the massive demand for medical gloves, its stock price soared 450% through the first seven months of 2020, making Lim one of the richest men in Malaysia for a time. In September 2020, Top Glove said it expected fresh highs after profit surged 1,500%.
However, the good times came to an end sooner than expected. By mid-2021, as Covid vaccines rolled out and more competitors, especially from China, jumped on the bandwagon, the market was flooded with gloves and overcapacity. This eventually caused ASP to crater, and profits and share prices to crash as much as 90%.
The value of Lim and his family’s stake in Top Glove tumbled in tandem – from US$6 billion (RM28.3 billion) at its peak in October 2020 to US$4.5 billion (RM21.2 billion) four months later, to US$1.6 billion (RM7.5 billion) in January 2021, according to a Bloomberg report.
As of April 20, 2024, Lim had a net worth of US$1.2 billion (RM5.65 billion), placing him at 21st spot on Forbes’ Malaysia’s 50 Richest list.
Despite the scepticism of various research houses, the latest Q3 results may be a sign that the good times are returning for Lim and Top Glove, if not in 2025, then 2026.