Based on a news report, the Top Glove factory in Negeri Sembilan which caught fire took nearly 3 hours to extinguish with almost 60% of the production facility being damaged, it was mentioned that the fire was caused by a broken oil pipe.
The factory has a production capacity of 3.2b pieces of nitrile gloves. Note that the group’s total production capacity
is 80b pieces of gloves with an average utilization rate of 32% as of 1QCY23. Hence the impact on the total production capacity is minimal given that the company can move orders to other factories said MIDF. The company is currently assessing damage to the plant, machinery, and inventory.
It is noted that the group has fire insurance for the factory, which could be sufficient to compensate for the damage. However, MIDF said it is cognisant that the process for filing an insurance claim typically involves a lengthy reimbursement process. Given the current oversupply of gloves and the low average utilisation rate at the manufacturing plant, it is believed the group can easily switch the order to other factories. Hence, the house makes no changes to its forecast, for now, pending more information about the damages.
As for the stock, the assessment is still SELL with an unchanged target price of RM0.55. MIDF remains cautious about Top Glove’s FY24F outlook mainly due to the limited room to pass on the increased cost via greater price hikes as customers can easily switch to other glovemakers that offer competitive prices. Adding that it thinks that the group may remain in the red for the next 1-2 quarters before attaining break-even due to the margin compression on the back of the ongoing oversupply of glove situation and rising input costs.
