(KUALA LUMPUR, 19th) Thanks to a recovery in demand for gloves and cost optimization, Top Glove (TOPGLOV,7113, Motherboard Healthcare Group) turned a loss into profit in the third quarter as of May 31, 2024, and recorded a net profit of RM50.67 million, compared to a net loss of RM130,589,000 in the previous period.
The cumulative net loss for 3 quarters fell sharply to 58.23 million
Top Glove lost 7 seasons in a row before. With this change in profit, the cumulative net loss for the three quarters narrowed to RM58,238,000, and the net loss for the same period last year reached RM463.493,000.
The Group's third-quarter turnover increased 20.03% year-on-year to RM636,877,000, compared to RM50,062 million in the third quarter of last year; cumulative three-quarter turnover recorded RM1,686.7 million, a decrease of 5.64% from RM1,781.57,000 in the same period last year.
Top Glove stated in its performance report that the third quarter's performance was due to strong demand for gloves, and its customers' excess inventory was emptied and replenished one after another.
“Higher capacity utilization as a result, combined with ongoing quality and cost optimization measures, also had a positive impact on profitability.”
The group added that the average price of natural latex concentrate rose 20% to RM6 77 cents per kilogram in the third quarter, while the price of nitrile latex increased 16% to 89 cents per kilogram. Despite rising raw material costs, improvement programs can help reduce production costs.
“Demand for gloves continues to increase, so the Group is able to raise the average sales price (ASP) and share part of the costs with customers. Furthermore, the sale of surplus land also helps to increase profits and cash flow, in line with the Turn Loss to Profit Plan (T6).” Overall, Top Glove believes that the gloves industry has recovered steadily in the third quarter as a result of a long-term imbalance.
Lin Jiangyuan, managing director of the group, stated in the statement: “The glove industry has seen a turnaround, customer orders have resumed, demand for gloves has improved, and the group has gone from loss to profit this season. We are very excited.”
He said that top gloves are poised to go forward, look forward to a brighter future, and are optimistic about the industry's prospects, then they will be able to regain market share and regain their leading position.
On the competitive side, Top Glove believes that with the recovery of the industry and the inclusion of a large number of other foreign-made gloves on the US Food and Drug Administration (FDA) import alert list, it is expected that this will keep the performance of the Malaysian glove business on an upward trend.
Top gloves are a major supplier in the US
On the other hand, the US government is about to drastically raise tariffs on Chinese medical gloves. In contrast, top gloves are expected to take advantage of this to expand business opportunities in the US.
The tariff comes into effect in 2026, and as a result, Top Glove estimates that US customers will gradually stop placing glove orders from China.
“Top Glove has always been the main glove supplier in the US. It is in a favorable position to gain more market share from potential trade transfers.”
Glove stocks take back their gains
The market is generally optimistic that the performance of top gloves will improve. In early trading, before the company released its quarterly earnings report, it actively entered the market to buy, driving up its stock trading price. However, selling pressure surfaced in the afternoon, causing the top gloves to exhaust their gains.
The top gloves were traded at a flat price of RM1 at RM17 cents. After that, they rose steadily. At one point, they rose 7 cents or 5.98%, and rose 1 RM24 cents to RM24 cents. During the market closure, they held RM1 23 cents, and rose 6 cents or 5.13% in the first half of the day. A total of 51.3 million 9,700 shares were traded, making them the tenth most popular stock.
In the afternoon, the top gloves reversed their gains and ended trading with RM1 and 14 cents, falling 3 cents or 2.56% throughout the day. The trading volume reached 164.9 million 2,100 shares, making it the third most popular stock in the market.
Other gloves, the “Heavenly King”, also generally declined. When HARTA (HARTA, 5168, Motherboard Healthcare Group) closed, it fell 12 cents to 3 ringgit 43 cents; Supermx (SUPERMX, 7106, Motherboard Healthcare Group) fell 1.5 cents to 93.5 cents; and high-yield products (KOSSAN, 7153, motherboard healthcare group) fell 7 cents to 2.41 cents.
Factories have been restarted one after another to increase production by 3 billion gloves
Lin Weicai said at the top glove performance briefing that the average price gap between China and Malaysia will narrow further, and the group's demand and earnings will continue to improve.
When it comes to whether Chinese glove makers will find another way out, Lin Weicai believes that Chinese merchants may go to ASEAN to set up factories, but currently they have only seen two companies in Vietnam and Malaysia, respectively.
“Once out of the mainland, Chinese glove makers are less competitive and lose their home market advantage because the Chinese government is very supportive of the glove industry; Chinese merchants will not be willing to sell gloves at low prices to customers in Europe and other countries to avoid further losses.”
Seeing the recovery of the glove industry, he said that Top Glove is starting to catch up with sales orders so that old factories that have been temporarily closed can resume production one by one. At the same time, the factory building, which was previously completed but has not yet started construction, can finally be put into operation.
The group expects to add 8 to 10 production lines each month, with a target increase of 3 billion units. The total annual production capacity of top gloves is about 60 billion pieces. Lin Weicai said that the factory utilization rate is only about 50%, and there is still a lot of room for improvement, yet the Chinese glove market is already operating at 100%, and there is no room for growth.
Furthermore, he pointed out that customer inventories are being emptied and new orders are pouring in. In April and May, we receive an average of 500 million orders per week, while in June and July the monthly order volume is expected to be 600 million to 700 million units, with an average growth rate of about 30%, which is very strong.
China-Malaysia glove price gap narrows customer buybacks
“Many of the orders came from old customers. Previously, they switched to Chinese glove vendors, but now the gap in the price of gloves between China and Malaysia has narrowed to about 50 cents to $1, and customers are back. Considering the risk, they don't want to limit themselves to only one country's suppliers; furthermore, our delivery period is shorter than that of Chinese merchants.”
For this reason, he believes that top gloves have the ability to adjust sales prices, and it is not difficult to achieve cost transfer. From June to July, the average price of gloves has seen an upward trend.
“Earnings are still very low compared to before the pandemic, yet supply and demand are balanced, so there is no need to lower prices. Earnings will definitely increase next. In a year or two, I believe they will demand more than supply.” Lin Weicai also said that as long as the situation continues, it will not be difficult to return to the pre-interest and tax profit level of the 2019 period, and it will even be better.
Looking ahead to market demand, he thinks it's definitely better than 5 years ago. Previously, demand had increased by up to 10% year over year.
Furthermore, in response to the government not extending the arrival date of foreign workers in Malaysia, Lin Weicai said that top gloves are now fully staffed, but in order to cope with the increase in production capacity in the future, the group will recruit employees domestically to meet more orders.
“However, we still hope that the government will reconsider extending the entry deadline for foreign workers, which will accelerate the recovery of the Group and the industry.”
Land sales revenue of 280 million
At the same time, Lin Jiangyuan, who also attended the briefing, said that Top Glove achieved revenue of about RM280 million in the third quarter by selling surplus land.
“This was carried out in accordance with the Group's plan to turn a loss into profit. It has a total surplus land bank worth approximately RM300 million. After deducting the above portion, it is expected to achieve another RM50 million in the fourth quarter. This will help improve the Group's cash flow and bond redemption.”
In addition, he said that top gloves predict a drop in raw material prices, that is, natural rubber latex concentrate should drop 6% in June, nitrile latex will drop moderately from June to September, and the price of natural gas will drop to 3% in July.
Sin Chew Daily
link:https://www.sinchew.com.my/news/20240619/finance/5694500