• Top Glove announced that US CBP has requested additional rectification and verification works that are related to i) the return of workers’ identity documents retained by recruitment agents and ii) remediation for workers.

• Top Glove informed that no disposable gloves have been seized pursuant to the Withhold Release Order and no financial as well as operational impact on the company based on current assessment.

• We believe the impact of CBP imposing a blanket restriction on Top glove products led to the negative sentiment on ESG perception, despite the lack of an earnings impact in the short term.

• Maintain forecast and TP of RM7.40 (18x PER on CY22f EPS) at this juncture pending further details and briefing on 8th April 2021.

Additional rectification request by CBP to address forced labour issues

Top Glove announced that US CBP has requested them to carry out additional rectification and verification works in relation to its efforts addressing forced labour issues. These are i) the return of workers’ identity documents retained by recruitment agents, which is believed to be less than 1% of its workers and ii) remediation for workers who didn’t manage to come to Malaysia to work due to Covid-19 related lockdowns. Top Glove also advised that as to date no disposable gloves have been seized pursuant to the Withhold Release Order and also no financial as well as operational impact on the company based on current assessment. We gather that total remediation involved amounted to RM149m with 12 instalments. Currently there are 4 outstanding repayments totalling about RM60m. Top Glove indicated that they are targeting to rectify the issues highlighted and complete the verification works within a month’s time. Thereafter, to resubmit the completed report to CBP.

Negative on ESG perception

Impact of CBP imposing a blanket restriction on Top glove products have led to the negative sentiment and unfavourable ESG perception among investors, despite the lack of an earnings impact in the short term. Top Glove’s sales volume to US market accounts for c.22% of its total sales volume as at 1HFY21. We believe in the short term, any loss in its US market could be partially offset by strong demand from other countries, on the back of current shortage of gloves globally and recent rebound in number of global Covid-19 cases.

Maintain BUY with TP RM7.40

We make no adjustment to our forecast at this juncture pending further details and management briefing on 8th April 2021. Top Glove’s share price has fallen by 51% from its peak in Oct 2020 and currently trading at an undemanding valuation of 3.3x FY21F PE which has somewhat reflected the negatives. Maintain BUY with TP RM7.40 based on PER of 18x on CY22f EPS. Additionally, Top Glove offers an attractive dividend yield of c.20%.

Source: BIMB Securities Research - 6 Apr 2021