SINGAPORE/KUALA LUMPUR (Sept 21): Gloves oversupply, new minimum wages and an increase in natural gas prices mean that Top Glove Corp Bhd’s earnings will continue to be under pressure, according to analysts.

Its shares fell as much as 7.8% to the lowest since September 2015.

The Malaysia-based maker of one out of every four gloves in the world posted its first quarterly loss since the company’s listing in 2001 amid falling prices and weak demand for protective gear globally.

Here’s what analysts said in notes.

Apex Securities

The group expects the challenging business environment to persist as the gloves oversupply situation inevitably resulted in low utilisation rate, which translates into higher unit cost.

Several factors such as implementation of new minimum wage and increase in natural gas and electricity prices will continue to compress its margin.

Management is activating cost pass-through mechanism — increasing average selling prices by 5% — but this may be challenging due to torrid competition among glove players to grab a larger piece of market share.

Citigroup

Top Glove's guidance is for volume to remain status quo in the near term, ie sub 40% utilisation with a pick-up potentially in the second half of 2022 (2H22) towards 50% at best.

Near-term earnings visibility is still challenged, but management believes the excess inventories could be exhausted within the next six months or so.

Top Glove's intention to raise prices is not new, but given ample supply, customers have the leverage.

Feedstock price is still broadly moderating, although natural gas price is set to rise by another 29% effective October 2022.

Kenanga Investment Bank

Top Glove expects the industry to turn the corner from 2H23, which is more optimistic than Kenanga's view of 2024.

Kenanga cut FY23 net profit forecast for Top Glove by 33%, reduced share target price by 8% to 60 sen and reiterated its "underperform" call for stock.

Top Glove highlighted that it is raising its prices by 5%, which could hurt sales volume considering the persistent oversupply situation.