Top Glove Corp Bhd may be harmed by the expected lower adjustment in average selling prices (ASP) and softer demand in the coming months.
Hong Leong Investment Bank Bhd (HLIB) Analyst Sophie Chua Siu Li said headwinds would likely persist in the short term, but that a concerted effort from industry players would be required to avoid the market becoming oversupplied.
Going forward, HLIB expects ASPs to decline at a slower month-over-month (MoM) rate, but the headwinds are unlikely to dissipate quickly.
“As glove buyers continue to err on the side of caution, glove prices are expected to continue declining in the coming months.
“However, the (Top Glove) management expects ASPs to decline at a lower quantum of 5.0 percent (MoM) as opposed to 10 percent MoM earlier, as the glove ASPs have now fallen closer to pre-Covid levels,” she said in a research report today.
According to Chua, the pricing gap between the US and European markets was also narrowing, with a difference of about US$5 now (compared to a difference of US$10 previously).
“Nitrile glove’s ASP is currently hovering around US$28 to US$30 per thousand pieces and ASPs are expected to normalise by mid-2022.”
She said the softening of demand had resulted in a current utilisation rate of around 60%, compared to pre-pandemic levels of between 80 and 85 percent and 95 percent at the peak of the pandemic.
Meanwhile, Top Glove’s dual primary listing on Hong Kong Exchange would likely see the issue of a maximum of 793.5 million shares, assuming the over-allotment option fully exercised.
“It could raise up to RM2.27 billion, assuming an issue price of RM2.86 per share for the group. This exercise would have a dilutive effect of 9.02 percent to its existing shareholders.”
She said lower demand for nitrile gloves had also resulted in the tapering off of raw material prices.
“Nitrile butadiene prices are expected to decline by 37 percent from September to a projected US$1.28 per kg in December, while latex prices are expected to remain largely flat for the same period.
