CEO Morning Brief

Top Glove Sees Higher Glove Sales as US Demand May Shift From China to Malaysia

Publish date: Thu, 20 Jun 2024, 10:23 AM
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TheEdge CEO Morning Brief
Top Glove managing director Lim Cheong Guan said the company will be in an even better position to command on the selling price of its gloves, further improving its margin as demand for Malaysian gloves pick up.

KUALA LUMPUR (June 19): Top Glove Corp Bhd (KL: TOPGLOV) said it expects the price of its raw materials to soften for the rest of the year, leading to a further improvement in its profit margin.

The group also expects to see an increase in glove demand in the coming quarters as the US may switch from China to Malaysia for its imports.

Specifically, it expects the natural rubber latex (NR latex) price to come down 6% in June, and nitrile butadiene rubber (NBR) price to be on a moderate downtrend from June to September. Besides that, natural gas tariff is expected to decline by 3% in July.

Although raw material costs escalated in its third financial quarter ended May 31, 2024 (3QFY2024), Top Glove managing director Lim Cheong Guan said the group has managed to improve its profitability margin, mainly due to its ability to command selling price, utilising its cost pass-through mechanism.

Top Glove's margin improved from -7% for FY2023 to 11% for the first nine months of FY2024.

"The NR latex price has gone up exceptionally higher due to the extreme weather impact, with the current price almost 50% higher than the pre-pandemic level price," Lim told a virtual press conference on Wednesday.

"However, both the NR latex and NBR price is expected to soften in the second half of 2024," he added.

According to Top Glove, raw material prices for 3QFY2024 were on an uptrend quarter-on-quarter, with the average NR latex concentrate price up by 20% to RM6.77/kg, and the average NBR price up 16% to 89 US cents per kg (RM4.19/kg).

Raw materials accounted for 41% of Top Glove's production cost structure in 3QFY2024.

Lim said that the group has also reopened temporarily closed factories and one new factory is to commence operations, increasing running capacity by an additional three billion pieces.

"The high utilisation rate will improve the production cost efficiency and improve our margin going forward," he said.

Stronger glove demand ahead

Lim said Top Glove expects to see stronger glove demand in the coming quarters as demand for gloves from the US may shift from China to Malaysia.

This is based on the fact that there are higher cases of Chinese glove manufacturers being added into the US Food and Drug Administration (FDA) import alert list. "As of today, 13 out of 14 cases since January 2024 were glove manufacturers from China," Lim said.

"Even though the tariff by the US on medical gloves from China will only commence in 2026, we believe the US customers will start outsourcing to Malaysian glove manufacturers before the tariff comes into force," he added.

Lim was referring to the announcement by US President Joe Biden last month that the government is raising the tariffs on Chinese rubber medical and surgical gloves from 7.5% to 25%, effective in 2026.

The move has been widely seen to be beneficial for Malaysian glove makers.

As demand for Malaysian gloves pick up, Lim said Top Glove will be in an even better position to command on the selling price of its gloves, further improving its margin.

"We have emerged from the storm, better perhaps, but not broken. We expect even brighter days ahead and [we will be] able to deliver better performance in the coming quarters," he added.

Earlier, Top Glove announced that it had returned to the black in 3QFY2024 with a net profit of RM50.67 million against a net loss of RM130.59 million in the previous year's corresponding quarter.

Quarterly revenue rose 20% year-on-year to RM636.88 million from RM530.62 million, as the growing glove demand enabled the group to share out some of the cost increases with customers through upward revisions in average selling prices.

Source: TheEdge - 20 Jun 2024

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