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Lower rating: A worker inspects disposable gloves at Top Glove’s factory in Shah Alam. Macquarie Research has lowered its rating on the world’s largest glovemaker to ‘underperform’ from ‘outperform’ previously. — AFP

PETALING JAYA: A downgrade by Macquarie Research saw Top Glove Corp Bhd’s shares take a huge beating, with its shares falling to 70 sen, down 9.8%, from the previous day’s RM7.15.

The brokerage lowered its rating on the world’s largest glovemaker to “underperform” from “outperform” previously.

It also revised its target price for Top Glove to RM5.40 from RM10.13 (adjusted for bonus issue) ahead of the group’s result for the financial year ended Aug 30,2020, (FY20) due out next Thursday.

“While we expect strong results and positive commentary around near-term average selling price (ASP) increases to fuel significant consensus upgrades, we believe the FY21 earnings peak is unlikely to be repeated once the demand-supply equation normalises in the second half of 2021 or first half of 2022, ” Macquarie said in its report.

“We would use this upgrade cycle and potential share price spike as an opportunity to take profits, ” it added.

It said at current levels, Top Glove’s shares were trading at a lofty 70 times the estimated price-earnings (PE) multiple for FY23.

“While we maintain that long-run PE multiples should mimic those of the consumer staples at 40-50 times, we believe investors should be ascribing these multiples on long-run earnings, rather than peak earnings, ” Macquarie explained.

It revealed that its recent discussions with Top Glove and the procurement team at a regional hospital chain confirmed that the supply of gloves remained very tight and ASPs would continue to rise.

“We understand that ASP increases of 15%-20% per month are still the order of the day until November. We expect the upcoming flu season in the northern hemisphere to be an added boost, ” Macquarie said.

“Interestingly, medical professionals we spoke to suggest that the opening up of borders will fuel demand for gloves as each traveller tested will require gloves, ” it added.

Against this backdrop, Macquarie had modelled in 20%-25% ASP increases for nitrile gloves between September and December 2021, resulting in a RM10.3bil profit in FY21.


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