Top Glove Q3 profit slumps to RM15.3m amid higher costs, moderating demand

GLOVE manufacturer Top Glove Corporation, a company that was notably one of the early beneficiaries of the coronavirus pandemic, is now reeling from a normalisation in demand and average selling prices (ASPs) for rubber gloves. Cost pressures are rising as well.

In a call on Thursday (Jun 9) to discuss the group’s latest financial results, Top Glove executives noted that the latest quarterly profit is “one of the lowest” and “definitely under pressure”. 

The company’s net profit for the third fiscal quarter ended May dived 99.3 per cent to a paltry RM15.3 million (S$4.8 million) from RM2.0 billion in the corresponding quarter last year, amid a “convergence of headwinds”. 

Revenue for Q3 was down 64.8 per cent to RM1.5 billion from RM4.2 billion in the corresponding year-ago period. Top Glove said topline figures were in contrast to the “exceptionally strong performance” in the corresponding quarter and 9-month period of FY2021. 

Back then, the Covid-19 pandemic was at its peak, with demand and ASPs at all-time highs. Operating costs were also lower.

Top Glove has recently fallen victim to rising production costs — a result of global inflation and the Russia-Ukraine conflict, which has driven up crude oil prices. Natural gas and electricity tariffs have gone up, and a minimum wage regulation took effect on May 1. All these factors compressed margins for the glovemaker. 

Back in the early stages of the pandemic, countries were buying gloves aggressively to stock up. Glovemakers ramped up production capacity to meet the higher demand, and the industry received new entrants in countries such as China and Vietnam. 

These factors resulted in an “oversupply situation” now, said Top Glove’s executive director Lim Cheong Guan. ASPs have also been dragged down by the “aggressive pricing” strategies of some Chinese glovemakers. 

Glovemakers that are exiting the market are also selling gloves at an “exceptionally low price” to clear their stock, which gives a “false signal” to customers on the market price of gloves. 

A sombre market environment has forced the company to defer and reduce its “major” capital expenditure for the immediate term. This year, the company will defer production capacity amounting to 9 billion pieces of gloves; next year, the figure will be 12 billion pieces. In 2024 and 2025, Top Glove will defer 6 billion and 5 billion pieces respectively. 

Capacity expansion will also be aligned with the demand and supply situation, Lim said. 

“The plan is always there. If there is a need, we can speed up the expansion, as we have identified the location with available landbank for our expansion,” he said. 

In response to a question on whether the company will be able to break even in Q4, executive chairman Lim Wee Chai warned that ASPs could fall below the pre-pandemic level due to the oversupply. 

For instance, the ASPs for nitrile gloves are “almost at the bottom”, and the price is about the same or slightly lower than the pre-pandemic price. 

However, these ASPs depend on the industry’s demand and supply, and as glovemakers cut production capacity, Top Glove executives are hoping that prices will become more stable. Glove ASPs are declining more slowly, which will help cushion the cost impact going forward. 

Shares of Top Glove, which is dual-listed in Singapore and Malaysia, closed at S$0.385 on the Singapore Exchange on Thursday (Jun 9), up 1.3 per cent or S$0.005. On the Bursa Malaysia, the counter ended the day at RM1.22, up 3.4 per cent or RM0.04. 

Over the past year, however, the stock has plunged by 75.9 per cent on the Singapore bourse, and 74.8 per cent on the Malaysia bourse.