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CGS-CIMB sees negative impact on Top Glove forecast due to EMCO

KUALA LUMPUR (Nov 18): CGS-CIMB Securities Sdn Bhd estimates that its Top Glove Corp Bhd revenue and net profit forecasts for financial year ending Aug 31, 2021 (FY21) will see a negative impact of 1.3% and 1.8% respectively after the rubber glove manufacturer said the 14-day Covid-19-driven enhanced movement control order (EMCO) from yesterday to Nov 30, 2020 at the group's specific foreign workers' dormitories in Meru, Klang, Selangor affects about 5,700 workers in the company.

"This represents about 27% of our total employees of 21,000,” Top Glove said in a statement yesterday.

Today, CGS-CIMB analyst Walter Aw said the estimated 5,700 workers represents 34.5% of Top Glove’s estimated production workforce of 16,500 employees.

"Assuming that the EMCO is implemented for the stipulated two weeks, we estimate its impact on our FY21F revenue and net profit forecasts to be -1.3% and -1.8%, respectively.

"Note that for every week the EMCO is extended for these 5,700 workers, our FY21F net profit estimate for TOPG will be reduced by another 0.7%,” Aw said.

"We understand that all 5,700 of the affected workers, who are mostly foreign labour, will not be allowed to work in the factories during EMCO. As a result, Top Glove’s factories are likely to be operating at reduced capacities in the next two weeks,” he said.

Aw said CGS-CIMB, nevertheless, believes Top Glove should be able to mitigate the impact of this EMCO via various initiatives including expediting the hiring of both temporary and permanent local workers to offset the loss of these foreign workers.

In addition, Aw said CGS-CIMB believes Top Glove will be able to make up for the delays once these 5,700 workers return to work.

“Top Glove does not expect any cancellation of orders or any penalty payments to its customers owing to late delivery of orders as a result of this EMCO.

"We make no changes to our FY21-23F EPS estimates as we believe the impact of this EMCO will be minimal. We also reiterate our Add call, with a TP (target price) of RM10.00, based on 17x CY22F P/E (in line with its 5-year historical mean).

"We continue to like Top Glove for being the key beneficiary of higher glove demand due to the Covid-19 pandemic, given its position as the world’s largest glove maker,” he said.

On Bursa Malaysia today, Top Glove’s share price fell 13 sen or 1.86% at 11:41am to RM6.87, valuing the company at about RM55.58 billion. The stock saw some 27 million shares traded.


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