KUALA LUMPUR (March 21): Top Glove Corp Bhd, the world’s biggest glovemaker by volume, will likely stay in the red in the year ending Aug 31, 2024 (FY2024) and investors should avoid buying into the stock for now, analysts said.

The company reported a narrower net loss at RM51.19 million for the December 2023-February 2024 quarter (2QFY2024), bringing total net loss to RM108.91 million for its first six months. Still, that was worse than the consensus estimates, which called for a full-year net loss of RM69 million, amid lower-than-expected margins.

“We expect Top Glove to remain loss making and profitability is unlikely to revert to pre-Covid levels anytime soon,” said Public Investment Bank, which kept the stock on “underperform”, equivalent to a “sell” call.

The research house, which now expects Top Glove to book a net loss of RM180.1 million for the full year, cautioned of a tough market amid “sustained competitive advantage” of Chinese glovemakers and escalating raw material prices.

So far this year, Top Glove has declined 6.1% on Bursa Malaysia, as earnings failed to catch up with investors’ optimism for a quick rebound in demand for its products. Shares of Hartalega Holdings Bhd, its closest rival, are down about 1% year-to-date.

Analysts generally remained cautious, with 10 out of 21 rating Top Glove as “sell”, while nine recommended “hold” and only two have “buy” calls, according to Bloomberg. The median 12-month target price is 79 sen, a potential further decline of 6.5% from the current price of 84.5 sen.

Top Glove and other glove manufacturers have languished as rapid capacity expansions have resulted in a worldwide production glut and as global economies reopened following the roll-out of Covid-19 vaccines. Customers meanwhile, grappled with bloated inventory after overbuying during the pandemic.

For Kenanga Investment Bank, which also maintained its “underperform” rating following Top Glove’s latest results, the market is expected to remain challenging in subsequent quarters due to the massive oversupply.

Production will persistently outstrip demand, which means low prices and depressed plant utilisation in the industry throughout this year, the house cautioned.

“Based on our estimates, the demand-supply situation will only start to head towards equilibrium” in 2026, when there is virtually no more new capacity coming onstream, while the global demand for gloves continues to rise by 15% annually, Kenanga said.

On its part, Top Glove is optimistic of returning to the black as early as August this year, citing further pick up in demand for gloves after two years of inventory destocking due to excess capacity built up during the pandemic.

“We target two more quarters to turn to profit, as the situation has improved,” Top Glove executive chairman Tan Sri Lim Wee Chai said at an earnings briefing. “Starting from March onwards, industry players from China and Thailand have increased selling prices by more than 10%. So, our selling prices will increase.”