Top Glove says well-placed to deal with lower average selling prices, greater competition

GLOVE manufacturer Top Glove Corporation BVA : BVA 0%was one of the early beneficiaries of the Covid-19 pandemic, booking higher revenues and profits from a spike in the global demand for gloves. However, the company’s top executives said there could be headwinds ahead as vaccines are rolled out progressively around the world.  

In a call to discuss the company’s latest financial results, Top Glove’s managing director Lee Kim Meow said while FY2020 was an “abnormal” time during which the company booked higher sales and profits, things have somewhat normalised in the current FY2021 ended August. 

Top Glove reported net profit of RM607.9 million (S$196.85 million) for the fourth fiscal quarter ended August, a 48.4 per cent decline from earnings of RM1.2 billion in the corresponding period last year.

This was due chiefly to a 32 per cent fall in revenue for the quarter to RM2.1 billion from RM3.1 billion in the year-ago period. Sales volume also booked a 33 per cent decline.

The group's net profit for the full FY2021, however, grew to RM7.9 billion from RM1.8 billion in FY2020. The group attributed this to strong glove demand coupled with elevated average selling prices (ASPs) driven by the Covid-19 pandemic.

Top Glove's board of directors declared a final single-tier dividend of 3.8 sen per ordinary share and a special single tier dividend of 1.6 sen per ordinary share. The dividends are payable on Oct 15. This takes the group's dividends for FY2021 to 65.1 sen per ordinary share, up from a full-year dividend of 11.8 sen per share in FY2020.

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Executive director Lim Cheong Guan noted that one of the key headwinds for the group is declining average selling prices (ASPs) of gloves that are in line with industry pricing trends. 

The speedy rollout of vaccines across the world as countries scramble to keep the virus under control has sped up the moderation of glove demand as well as the tapering of ASPs. 

Top Glove is expecting ASPs to “normalise” by January next year, and Top Glove will slow down its expansion accordingly, which is “part of a normal business cycle”. 

“We are experienced in handling this. For some newer players, it might be more challenging,” said Mr Lim, adding that the company remains open to mergers and acquisitions should a suitable opportunity arise. 

Raw material prices are also higher, which could add to the financial burden of lower ASPs. Average natural latex concentrate prices were up 29 per cent year on year to RM5.73 per kg, while average nitrile latex prices more than doubled to US$2.11 per kg.

Demand has also taken a hit, said Mr Lim. Some Top Glove customers are adopting a “wait and see approach” in anticipation of falling ASPs. 

Top Glove’s managing director Lee Kim Meow however noted that certain countries are taking advantage of the lower prices. Customers in Africa, Vietnam, Thailand and China - who were not actively buying gloves last year - are buying more now. 

“It’s now more affordable for (these countries) to buy gloves, and they are coming back again ... These regions will continue to play their part and pick up gloves,” said Mr Lee. 

Customers in North America, Western and Eastern Europe, Asia and Japan that were aggressively buying gloves in FY2020 are now seeing slower sales. 

 Competition is also on the rise, said Mr Lim. Top Glove is bracing for more competition from manufacturers in China, Thailand and Vietnam. But Top Glove's diverse range of products and customers means it is well positioned to deal with competition.

To better pit itself against competitors, Top Glove will also focus on keeping its costs low and exploring improvements in its production processes through technology and innovation. 

Top Glove is also “back in business” in the United States after the US Custom and Border Protection (CBP) lifted its import ban on some of Top Glove’s products. The ban was imposed on the grounds of forced labour findings against disposable gloves produced in Malaysia by the company. 

Mr Lee said Top Glove has been doing business with its US customers for a long time, and that the company has not lost these customers to other competitors. 

He added that the company is getting ready to ship its products over to the US as soon as early October, and is confident it can continue to attract customers in the market and expand its reach there. 

Shares of Top Glove, which are dual-listed in Singapore and Malaysia, ended the week lower on both bourses. In Singapore, shares fell 7 per cent or 7.5 Singapore cents to 99.5 cents, while in Malaysia the counter lost 4.4 per cent or RM0.14 to RM3.06.