TOPGLOV (7113) Top Glove Corp Bhd expects dent to bottom line from gas tariff hike
Managing director Datuk Lee Kim Meow(pic) targeted the company’s profitability would be impacted between 1% and 2% following the price adjustment.
PETALING JAYA: Top Glove Corp Bhd , the world largest glovemaker, expects the surprise natural gas tariff hike earlier this month to put a dent on its bottom line.
This is because of the lag time needed by the company to pass down the higher cost of production to its customers.
Managing director Datuk Lee Kim Meow targeted the company’s profitability would be impacted between 1% and 2% following the price adjustment.
“As such we and the Malaysian Rubber Glove Manufacturers Association (MARGMA) had made an appeal to Gas Malaysia Bhd to let us know in advance on the changes of gas prices.
“This is because the industry needs time to adjust to it, where we need to talk to our customers in the prices changes,” he said.
Shares of the company, as well as other glovemakers, took a big hit since the tariff hike was announced.
On July 12, Gas Malaysia Bhd announced the increase in natural gas price to RM32.74 per million British thermal units (MMBtu) for the period of July 15 to Dec 31, 2019, from RM32.69 per MMBtu.
This translated to an increase of 5.3% from the previous average tariff.
Following the announcement, Margma president Denis Low Jau Foo has lambasted Gas Malaysia for making a sudden announcement on changes in the gas price hike, with only a three-day notice.
“ As mentioned repeatedly in the past, in rubber glove export business, orders are taken two to three months ahead based on prevailing production costs by the foreign buyers,” he said in a statement.
He pointed out that Malaysian manufacturers must absorb the cost increase in order to honour the estimated RM5bil of orders taken before the announcement. As a result, in total, Malaysia would stand to lose an estimated RM47.2mil foreign revenue resulting from the sudden gas tariff increase over the next three months.
He added that the tariff increase is higher than the base tariff at RM32.74 per MMBtu as announced in the road map on Dec 28, 2016.
Meanwhile, Top Gloves Lim said that the changes in the gas price are estimated to an increase in the glove production cost of between US$0.40 and US$0.80 per 1,000 pieces of gloves.
“Any changes in input prices we need to talk to our customers.
“And likewise, in the future, if there is a drop in raw material prices we will pass the cost savings or benefits to our customers.
“This is the only way we could have a long-term relationship with our customers, to show to them that we are a fair manufacturer,” he said. Nevertheless, Lee said Malaysia’s glove manufacturers will continue to do well
“Made in Malaysia carries a strong value,” he said adding that the Malaysia’s glove manufacturers supply 60%-70% of the world’s gloves consumption.
Many glove manufacturer counters on Bursa Malaysia fell in anticipation of the hike in gas price.
Since the start of July, shares in Top Glove declined 4.9% to RM4.68 at last Friday closing while Hartalega Holdings Bhd fell 1.7% to RM5.17 and Supermax Corp Bhd dipped 3.5% to RM1.64.
Kossan Rubber Industries Bhd saw a 2.5% increase to RM4.08 a share.
MIDF Research said that glove makers will likely be able to pass on the higher costs to clients in September in line with the cost pass-through mechanism
It expected the gas price hike to affect 5% of glovemakers’ earnings in the third quarter of this year.