Meanwhile, Maybank Investment Bank gives an expanded ESG tear sheet on Top Glove and assigns a below-average overall score of 47 (over 100) based on its aggregated quantitative/ qualitative/target-based metrics.
Top Glove has been actively enhancing its human rights and labour practices post the US CBP ban on allegations related to human rights and labour management back in 2020, however, the research house maintains its earnings forecasts, MYR0.35 TP (13x CY24E PER) and SELL.
Maybank IB says it finds the rubber glove maker’s ESG-related policies and framework adequate. Its overall ESG score of 47 is below average on its ESG rating dragged by its quantitative “E” on rising GHG, carbon emission, natural gas, water, and energy consumption intensity. The ESG scoring is similar to Sustainalytics’ score of TOPG’s ESG risks at 24.4, putting it in the ‘Medium’ risk category.
The group has been actively implementing multiple initiatives toward improving social compliance practices, according to international best practices. In FY22, Top Glove conducted 59 social compliance audits on SMETA, BSCI, and the Customer Code of Conduct to demonstrate its commitment to safeguarding the human rights of its employees. TOPG revamped its recruitment and due diligence (DD) policy in Jan 2021 and run an open tender for foreign worker recruitments and conducted a thorough DD on the selection of ethical recruitment agencies. It plans to invest e.MYR232m to improve accommodation for its workers. Two of the planned hostels have been completed in Dec 2022. These higher compliance costs are, however, unable to be passed on given the current gloves oversupply situation.
The near-term outlook remains challenging due to a low plant utilisation rate of 30% (on effective capacity) no thanks to ongoing inventory depletion activities at the customers’ end and stiff competition, especially from the China counterparts. For now, TOPG will focus on strengthening/optimising its cost structure and temporarily shut down old/inefficient factories.
