Factory closure to push Top Glove's prices?

KUALA LUMPUR: The temporary closure of 28 Top Glove Corp Bhd factories in Selangor is likely to push the company and industry average selling prices (ASPs) higher on potential supply disruption, Kenanga Research said.

The firm said Top Glove's factories in Klang had been operating at less than 20 per cent utilisation since the Enhanced Movement Control Order was enforced.

"For illustration purposes, based on our back-of-the-envelope calculation, assuming all the Klang factories stopped production for two weeks, the loss in production is about two per cent," Kenanga Research said in a report today.

Senior Minister (Security Cluster) Datuk Seri Ismail Sabri Yaakob announced yesterday that Top Glove's factories in Klang would cease operations in stages to allow factory workers to undergo screenings and mandatory quarantine in an effort to contain the spread of the virus among its employees.

Top Glove, in a filing to Bursa Malaysia, confirmed that it would temporarily shut down 28 factories in Klang, following an insurgence of Covid-19 cases among its workers.

Top Glove, the world's largest glove manufacturer, has 41 factories in Malaysia.

"With reference to the announcement by the senior minister, Top Glove will work closely and cooperate fully with the relevant authorities to implement the temporary stoppage by stages of our manufacturing facilities in Meru, Klang," the company said.

Kenanga Research said Top Glove accounted for 25 per cent of global market share, and the situation would likely push the company's and industry ASPs higher given the potential supply disruption.

"Recall our financial years 2021 and 202 ASP assumptions of US$55 and US$40 per 1,000 pieces respectively compared to the current nitrile ASP of between US$70 to US$90," said the firm, which did not make changes to its earnings estimates on Top Glove pending further developments on the situation.

Kenanga Research has maintained its "outperform" call with a target price of RM10.68.