KUALA LUMPUR (March 20): Top Glove Corp Bhd is keeping to its target to return to the black as early as August this year, as demand for gloves continues to pick up after two years of inventory destocking due to excess capacity built up during the Covid-19 pandemic.

The group previously said the same in December last year, when it saw month-on-month jump in orders of about 30%-40%.

“We target two more quarters to turn to profit as the situation has improved. Starting from March onward, industry players from China and Thailand have increased selling prices by more than 10%. So, our selling prices will increase,” Top Glove executive chairman Tan Sri Lim Wee Chai told a virtual media and analysts’ briefing on Top Glove’s results for the second quarter ended Feb 29, 2023 (2QFY2024).

The group is expecting its revenue to jump by more than 20% in its 3QFY2024 ending May 31, after it observed increasing sales for March and April as well as an upward adjustment of the average selling price (ASP) of gloves.

“We received more orders for March and April. Basically, demand is coming back. Most of the glove stocks have been cleared off, so the market has started to buy gloves. During the pandemic, we overproduced the stocks, so the market had excess stock. After almost two years, most customers have cleared 95% [of their] glove stock,” Lim said.

According to Lim, the group’s weekly sales volume improved to up to 600 million pieces of gloves in March and April, from about 400 million and 500 million pieces previously.

“The price (for gloves) also increased another 5% to 10%, so next quarter's sales and revenue should increase by more than 20%,” Lim said.

Currently, its nitrile gloves' average ASP stood at US$17 per 1,000 pieces, while natural rubber gloves’ average ASP stood at US$18 per 1,000 pieces.

He also said the price increase in raw materials, seen during its latest reporting quarter, would be temporary. He expects prices of natural rubber latex concentrate to soften in May, while prices of nitrile latex should ease in June.

To prioritise cash preservation

Meanwhile, the group plans to prioritise cash preservation after its net cash declined to RM405 million as at Feb 29, 2024, from RM450 million as at Nov 30, 2023.

Its net cash dropped due to higher raw material prices, which led to higher working capital requirements, payments for half-yearly sukuk interest in February, as well as higher capital expenditure in the second quarter of FY2024 for the recommencement of several production lines.

Earlier on Wednesday, Top Glove reported a net loss of RM51.19 million for its 2QFY2024 ended Feb 29, from RM164.67 million a year earlier, fuelled by stronger sales volume growth, as customers placed new orders following the depletion of excess inventory.

Revenue for the quarter came in lower at RM550.33 million versus RM618.01 million the year before.

On a quarter-on-quarter (q-o-q) basis, its revenue rose 11.53% from RM493.46 million in 1QFY2024, while net loss narrowed from RM57.71 million previously — marking two straight quarters of improved bottom line. It registered a net loss of RM463.15 million and revenue of RM475.87 million in 4QFY2023.

For the first six months of FY2024 (6MFY2024), Top Glove’s net loss narrowed to RM108.91 million from RM332.90 million in 6MFY2023. Though revenue declined to RM1.04 billion from RM1.25 billion previously, it saw an uptick in orders that boosted production utilisation, which resulted in enhanced production and cost efficiency, which positively impacted its bottom line, together with operational enhancements to optimise quality and costs.

Top Glove's share price settled up 6.5 sen or 8.2% to 86 sen, bringing the group a market capitalisation of RM7.06 billion.

Source: TheEdge - 21 Mar 2024