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The good news that came late for TOPGLOV (7113) TOP GLOVE CORP BHD

KUALA LUMPUR (Sept 10): Top Glove is now able to resume exporting and selling its gloves to the US market, after more than a year since the US Customs and Border Protection (CBP) in July 2020 banned its shipments to the US over allegations of forced labour.

The world's largest glove manufacturer, whose share price has tumbled close to 50% since the ban, gained as much as 10.29% to RM3.75 today following the news.

The gains, however, were not sustainable, as profit-taking emerged and the stock eventually settled at RM3.43, just three sen or 0.88% higher than yesterday's close, giving it a market capitalisation of RM28.15 billion.

The stock saw 71.19 million shares done, making it among the top 10 actively traded stocks on the local bourse today.

While analysts are positive about the news that Top Glove is now allowed to resume its sales to the US market following the upliftment of the detention order on its subsidiaries, they said the news came late for Top Glove.

After observing the company's share price performance today, JF Apex Research analyst Nursuhaiza Hashim said the CBP's lifting of the ban on Top Glove "took longer than expected".

"As we can see, after this news came out, the share price did not rally much. I believe this was because investors have become weary about this issue as the group took a long time to resolve it," Nursuhaiza told theedgemarkets.com when contacted.

By and large, other analysts think so too, and expect Top Glove shares to remain subdued, amid the industry-wide issue of downtrending average selling price (ASP) for gloves, oversupply, and stagnant demand growth.

"There is more downside than upside for the company's share price as the downtrend in ASP will offset the upliftment of the ban," said Malacca Securities Sdn Bhd head of research Loui Low, who has a rather bearish view on the glove maker's share price.

Inter-Pacific Research analyst David Lai, meanwhile, said the good news does not warrant any upgrade for the stock, as the industry will only bottom out once the consolidation among players is done, with better visibility on the demand growth for gloves.

Meanwhile, Nursuhaiza cautioned that downside risks remain for Top Glove despite this ban removal, and that it is still possible for the company to be accused of forced labour issues in the future.

There is also the risk of losing customer confidence that will cause them to shift to other glove makers, especially those from Western countries like the US and Europe, as they take the issue of forced labor very seriously, Nursuhaiza said.

Hence, Nursuhaiza expects it will take more time for Top Glove to win back its US clients' faith as the company's image has been badly affected by this issue.

"Nevertheless, I expect some recovery (of sales from the US market) for the time being… and I reckon that earnings or sales will slightly improve, given additional contribution from their US market. But I expect it will not be as high as (when it peaked in) the second quarter ended Feb 28, 2021 (2QFY21)," she said.

Meanwhile, Nursuhaiza is keeping Top Glove on "hold", pending the group's upcoming results.

In July last year, Top Glove said two subsidiaries — Top Glove Sdn Bhd and TG Medical Sdn Bhd — were placed under detention order by the CBP, and that their sales accounted for 12.5% of its total sales.

Following the ban, its North American sales sank to just 8% of Top Glove's total sales volume in 3QFY21. At the time, its 3QFY21 revenue fell to RM4.16 billion from RM5.37 billion in 2QFY21, when US sales made up 23% of its total sales volume.

Top Glove's reputation took a blow from the ban and forced it to delay its initial attempt to list in Hong Kong Stock Exchange.

Top Glove, which is also listed in Singapore, announced the initial public offering (IPO) plan in February with an initial target of raising RM7.7 billion. That was downsized to RM4.17 billion in April, involving 793.5 million shares or 9.02% of its enlarged share capital, theedgemarkets.com reported.

Two weeks ago on Aug 26, the glove maker said it was still pursuing the IPO plan and that said it intended to renew its application to the Hong Kong Exchanges and Clearing Ltd as soon as practicable.


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