Meru line closures to cut revenue by 3%: Top Glove
OFigure for full year is based on two weeks of 50% reduction in output and one week of impaired capacity
PETALING JAYA: The disruption from the closure of production lines starting yesterday at Top Glove Corporation Bhd’s factory in Meru, Klang, which is located in an area with one of Malaysia’s biggest Covid-19 outbreaks – the Teratai Cluster – is expected to translate into a 3% contraction in the group’s revenue for the full financial year.
Top Glove executive chairman Tan Sri Dr Lim Wee Chai explained that the figure is based on a 50% reduction in production for two weeks, which amounts to an estimated 2% decline in sales revenue, with an additional week of impaired capacity, equivalent to a further 1%.
“Today, we have temporarily stopped operation of 20 lines in Meru, only eight lines are running at reduced capacity between 10% and 20%,” he told the media in a virtual briefing yesterday.
Apart from the direct revenue impact, the group expects the impaired capacity to affect its product delivery time, according to managing director Lee Kim Meow.
“Thankfully, Top Glove has factories in other locations in Malaysia, as well as in Thailand, Vietnam and China. Basically, we will have to inform our customers that there will be a slight delay in their shipment,” he said.
Given the situation, Lee said, Top Glove will prioritise delivery to essential customers such as hospitals, and it will do its best to catch up with orders, as well as cooperate closely with authorities to uplift the emergency movement control order (EMCO) to proceed with production.
Top Glove also said it does not foresee any cancellation of orders given its relationship with its customers.
With regard to possible Covid-19 contamination of its gloves from the affected factory, Top Glove does not expect this to happen. Lim explained that its factory is not a conducive environment for the virus and it will not survive the 110 degrees celsius oven-hot process.
“Furthermore, our workers utilise full PPE, which include gloves, face mask and face helmet, and there is no direct contact with the gloves,” he said.
“Top Glove’s production line is fully automated with no direct contact with the gloves and the high temperature of over 40 degree celsius in the containers, as well as the one-month shipping time, makes contamination unlikely.”
Lee also disclosed that the group has been in communication with the US Customs and Border Protection agency (US CBP) over its current predicament as part of its efforts to uplift it from the withhold release order status imposed on the glove maker over concerns of forced labour.
He revealed that the group has made progress with the agency to uplift its status.
“We feel that the CBP wants us to do some verification, but we are currently occupied with the EMCO and will get back to them in an effort to uplift our status.”
On the group’s share buybacks, Lim said the management takes a view that at the current price it is a good buy, and it anticipates a dividend yield of more than 6%.
“Most importantly, the group has enough cash as it has about RM2 billion net, even after spending RM1 billion in share buybacks so far.”
Lim said this is in line with the successful companies in the US, such as Apple, Google’s Alphabet and Warren Buffet’s Berkshire Hathaway.
A lesson that Top Glove takes away from these companies is that if there is enough cash and the dividend yield is high enough, share buyback is a good management practice.