• EMCO implemented at Top Glove hostels in Meru, Klang effective 17th Nov – 30th Nov 2020 due to rising cases in Teratai Cluster.

• Company estimated about 2,500 workers affected, comprising circa 15% of Top Glove total group’s workforce.

• We expect minimal impact (<1%) on Top Glove earnings based on the current information and assuming that the situation does not worsen. Reiterate Buy call with TP RM10.80.

Imposition of EMCO at Top Glove hostels

The government has announced the imposition of EMCO at Top Glove workers’ hostelsin Meru, Klang effective 17th Nov - 30th Nov 2020. This come about from the rising cases in the Teratai cluster (total 228 cases as at 16 Nov) of which Top Glove workers are linked to. The two affected hostels (1 male and 1 female) comprised an estimated 2,500 workers which also includes those that were previously tested positive and quarantined. Top Glove has a total of 16,000 workers, with 8,000 workers working in its factories in Klang.

Top Glove to cooperate and comply fully with EMCO

On the imposition of EMCO, Top Glove has indicated that it will work closely with the relevant authorities in flattening the infection curve amongst its employees to safe guard and ensure their wellbeing. Additionally, stringent adherence to Covid-19 preventive SOPs are to be adopted with disinfection exercises conducted regularly at the company’s premises and accommodation with all precautionary measures strictly in place.

Minimal impact on earnings

The estimated 2,500 affected workers comprised circa 15% of Top Glove total group’s workforce. The absence or unavailability of these workers might lead to some disruptions in production during the EMCO period. Nonetheless, provided that the number of workers affected remain the same and no extension beyond the 2 weeks quarantine period, impact to our earnings would be minimal at c.0.9% and therefore immaterial at this juncture. Additionally, Top Glove does not expect any cancellation of orders or payment penalty to its customers owing to delay in delivery.

Maintain BUY with TP RM10.80

We make no adjustment to our forecast at this juncture and maintain TP of RM10.80 (PER 16x pegged on FY21 EPS). We like Top Glove as it is the world’s largest glove producer with global demand for glove remaining strong on account of Covid-19 prevalence across the globe and structural change in higher glove usage due to greater hygiene awareness.

Source: BIMB Securities Research - 17 Nov 2020