Top Glove’s chairman says return to profit may take up to a year amid headwinds
Uma Devi
GLOVE manufacturer Top Glove Corporation could take up to a year to return to profitability, founder and executive chairman Lim Wee Chai said on Wednesday (Dec 14), after the group posted a net loss of RM168.2 million (S$51.6 million) for the first fiscal quarter of the year ended November.
Losses for the quarter were more than triple the net loss of RM52.6 million in the previous quarter, and a reversal from earnings of RM185.7 million in the year-ago period.
Lim estimated that Top Glove’s losses will narrow in the next three months. He added that the group should break even six months from now, but profitability would come only nine to 12 months later.
The company, which was raking in record-high profits during a large part of the Covid-19 pandemic, has been battling a number of challenges including lower demand, average selling prices (ASPs) and stiff competition.
Top Glove executives said they have observed an “aggressive price competition” in the industry. Glovemakers exiting the market are selling gloves at an “exceptionally low” price, which has caused price disruption.
Lim noted that Chinese glovemakers are also cutting the prices of gloves to as low as US$14 per 1,000 pieces of gloves. In comparison, glove prices were sold at prices higher than US$100 per 1,000 pieces during the pandemic.
To cut losses, these glovemakers are also reducing their utilisation rates to below 50 per cent, and have been using technology to speed up production.
Top Glove will not be able to sell its nitrile gloves – save for its old stock – at such a low price, said Lim.
Top Glove’s revenue for the period was down 60.7 per cent to RM632.5 million from RM1.6 billion, the company said. Sales volume for Q1 eased roughly 48 per cent.
On the demand end, Top Glove is battling weak market demand across all regions and the ongoing correction in the mismatch between glove demand and supply. Customers have no urgency to place bigger orders, and are also holding off restocking activity as they continue to deplete their existing glove inventory.
Lim said the supply-demand imbalance will take about six months to normalise, and glove ASPs are already near rock bottom.
Top Glove has also taken cost-cutting measures to protect its margins. Executive director Ng Yong Lin said the company has pulled all its capital expenditure for FY2023, and will focus on “optimising costs by rationing resources at production facilities”.
The company is now focusing on running the newer and more efficient factories, while temporarily shutting down the older and less efficient ones, he said.
On the issue of dividend payouts, managing director Lim Cheong Guan said Top Glove remains committed to its existing dividend policy of a payout of 50 per cent of earnings. The company intends to resume paying out dividends when it returns to profitability, and treasury shares are also one avenue it can consider, he said.
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