• Top Glove held an analyst briefing today on the shutting down of its 28 factories in Meru, Klang for Covid-19 screening. So far, 5,767 workers have been tested and 2,534 are positive cases. The Covid-19 positive workers have been sent to hospitals while the rest are under quarantine in the company’s newly built apartment and hotels nearby. The cost of testing is RM150 per worker, and is fully borne by Socso. Meanwhile, Top Glove is still awaiting confirmation from the authorities on the date of resumption of operation.
• According to Top Glove, of the 28 above mentioned factories, 20 are glove production facilities with an estimated capacity of about 45bil pieces per annum. Management noted that of all glove production facilities in Klang, only 10% of them are operational due to the shortage of manpower. The company is ramping up production outside Klang to meet customers’ demand.
• To reduce the reliance on foreign workers, Top Glove has been employing local workers as early as March 2020. Presently, out of the 13,700 workers in Malaysia, about 2,000 are local workers. The company is planning to increase the intake of local workers to overcome labour shortages.
• Top Glove has not revealed the monetary loss resulting from this closure. However, based on our rough estimates, assuming 20 of the 36 glove production factories operating in Meru, Klang are closed for 2 weeks, the total impact to Top Glove’s revenue will be around 2% which is not significant.
• We are not making any changes to our earnings forecasts at this juncture. However, we will monitor closely to assess the total loss and will adjust our numbers accordingly once the official numbers are announced. Maintain HOLD with an unchanged fair value of RM7.88 per share based on a 5-year average PER of 28x.

Source: AmInvest Research - 24 Nov 2020