Resumption of exports to US should cushion current downtrend in glove ASP for Top Glove

KUCHING: Top Glove Corporation Bhd (Top Glove) is expected to see an improvement in its sales volume driven by the resumption of the exports of its products to the US.

Analysts expect that this should also cushion the current downtrend in average selling prices (ASP) of gloves.

In a report, the research team at AmInvestment Bank Bhd (AmInvestment) said: “We expect Top Glove’s sales volume to improve in the first quarter of the financial year 2022 (1QFY22) as the company is been allowed to export its gloves to the US effective September 10.

“Note that the US is the largest gloves consumer in the world, accounting for about 35 per cent of global demand. Having said that, we believe that the current ASP downtrend should continue in 1QFY22 but will stabilise in 2QFY22.”

Meanwhile, the research team at Kenanga Investment Bank Bhd (Kenanga Research) noted that due to over-ordering in the past 15 months since the pandemic started, the glove market is currently undergoing a phase of inventory adjustment.

“We highlight that some glove manufacturers are of the view that ASP will likely normalise at US$30 per 1,000 pieces considering that the cost structure has risen amongst others including social compliance costs,” it added.

Post Covid-19, it said, inventory restocking cycle is expected to spur demand coupled with increased usage arising from new users and increased hygiene awareness.

All in, Kenanga Research downgraded its forecast on Top Glove due to the current trend in glove ASP.

“Our FY22E/FY23E net profits are downgraded by 32 per cent/21 per cent as follow; FY22E – ASP cut from US$37 to US$32 per 1,000 pieces and reduce EBTDA margin to 28 per cent from 34 per cent; and FY23E – cut EBITDA margin assumption to 25 per cent from 34 per cent based on ASP of US$29 per 1,000 pieces. As comparison, the pre-Covid EBITDA margin was in the range of 14-18 per cent,” it said.

AmInvestment also lowered its earnings estimates for FY22 and FY23 by 34 and 10 per cent to RM1.86 billion and RM1.37 billion due to the reduction in ASP assumptions.

On a positive note, it said, Top Glove’s ESG outlook has improved. The company is also in strong net cash position of RM2.05 billion or RM0.26 per share.

As such, it maintained its ‘hold’ call on the stock while Kenanga Research reiterated its ‘outperform’ rating on the stock.