Remaining Cautious Over Top Glove

In its 1Q FY 2023 financial report, Top Glove missed the earning expectation of analysts. The results came in below expectations as it reported a core net loss of RM131.4 million. This is after excluding a one-time item of RM36.9m.

The glovemaker said the negative deviation was mainly due to weaker-than-expected sales volume and higher-than-expected production cost as a result no dividend was declared for the quarter.

Overall its revenue plunged -36.1%qoq to RM632.5m primarily due to lower blended average selling prices (ASP) (-8%qoq) and decreased sales volume across all product ranges (- 32%qoq). Production costs per unit were also higher, owing to low utilisation rates and increased natural gas prices which more than offset the lower raw material costs. Hence, that compressed margin and dragged net loss widen from -RM80.7m in 4QFY22 to -RM131.4m in 1QFY23. On yearly basis, earnings were weak as Top Glove reported a core net loss of RM131.4m against a core net profit of RM172.9m last year.

This is in tandem with reduced revenue from RM1.58b to RM632.5m. The poor performance was largely due to reduced sales volume, lower blended ASPs, increased energy cost, and higher production cost per unit due to lower volume. While the remaining region experienced negative growth for the quarter, North America continued to record a robust increase in sales volume.

With such a bleak outlook, the group said it will postpone its expansion plans for FY23F until supply and demand have stabilised. The group temporarily shut down inefficient plants and only operate effective manufacturing facilities to reduce the fixed cost and hence lower the production cost per unit. Although the rate of reduction in ASP is slowing down and shown signs of stabilizing, MIDF still anticipates it to remain around USD19-USD21 per 1000 pieces going forward due to the oversupply of gloves and reduced demand as most countries entered an endemic phase.

Besides, the house does not anticipate any cost-pass-through mechanisms in the near term due to the intense price competition from both domestic and Chinese glovemakers. MIDF anticipates the average ASPs for Malaysian glovemakers is at USD17 -18/1000 pieces. Meanwhile, Chinese glovemakers are selling at a loss with an average ASP of USD14-15/1000 pieces. MIDF believes Top Glove will keep its ASP at a competitive level to maintain and improve sales volume.

In view of the weak earnings in 1QFY23, MIDF has cut the earnings estimations to reflect lower sales volume ahead, which resulted in a lower utilisation rate, lower ASPs, and higher energy cost.

MIDF remains cautious about Top glove’s FY23F outlook mainly due to its inability to increase the ASP as customers can easily switch to other glovemakers that offer cheaper prices. It is believed the group may remain in the red for the next 1-2 quarters before attaining break-even due to the weaker sales order and lower utilisation rate which resulted in higher production cost per unit.

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