• Top Glove announced on 26th April that it has resolved all 11 International Labour Organization (ILO) indicators of forced labour.
• Positive on this development as Top Glove has taken proactive measures in overcoming ESG issues and adopting best practice in improving its workers welfare.
• Maintain BUY with TP RM7.40 based on 18x PER pegged to CY22f EPS. Valuation remain attractive trading at only 4.2x FY21f PER and offer higher dividend yield of 15.9%.

All 11 ILO indicators of forced labour have been resolved

Top Glove announced on 26th April that they have resolved all 11 International Labour Organization (ILO) indicators of forced labour. Compliance have been verified by independent international UK consultant, Impactt Limited in its report dated 22nd April (refer table 1). In line with the US CBP Withhold Release Order (WRO) modification/ revocation process, CBP will now determine if all ILO indicators have been satisfactorily rectified and thereafter removes Top Glove from the scope of the WRO. We expect this to be forthcoming soon. According to management, Top Glove remains committed to be the best company that it can become and have recently been collaborating with Independent Migrant Worker Rights Specialist, Andy Hall in an effort to be a leading manufacturer with the best possible ESG practices across the glove industry.

Positive on the new development

We are positive on this development as we observed Top Glove has undertaken serious efforts in resolving social issues besetting the company. This will greatly assist in the early upliftment of the US CBP ban, thus ensuring the continued participation of Top Glove in the lucrative US glove market, in our opinion. To recap, Top Glove’s sales volume to US market accounts for c.22%, of which Top Glove Malaysia contributed c.14% as at 1HFY21. Only Top Glove products produced in Malaysia are temporarily barred but those made in China, Vietnam and Thailand can continue to be shipped to the US.

Maintain BUY with TP RM7.40

Maintain BUY recommendation with TP RM7.40 based on PER of 18x on CY22f EPS. Despite the recovery in prices by some 30% since US CBP announced seizure of Top Glove products over forced labour findings at end-March, we are of the view that the stock still offer compelling value as sentiment improves amid rising Covid-19 cases worldwide. We like top Glove due to i) defensive business nature with good earnings prospects, ii) best practices and serious efforts implemented to meet ESG demands, iii) an undemanding valuation of 4.2x FY21f PER and iv) attractive dividend yield of 15.9%.

Source: BIMB Securities Research - 27 Apr 2021