TOPGLOV 4QFY22 Briefing Q&A -- ASP close to bottom

Publish date: Tue, 20 Sep 2022, 05:10 PM
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View of ASP trend, has it bottomed, further price decline?

  • YoY drastic % decline
  • QoQ % 5% decline -> slower pace of decilne
  • Close to bottom
  • Oct pricing expect 5% increase - cost passthrough mechanism

Biggest threat to the industry

  • Current situation - loss making, not reflecting of situation of the glove industry potential
  • Adjustment period now
  • Nothing affecting fundamental
  • No substitute
  • Demand will be back (gloves are disposable item) in the next 6 months once stock is cleared
  • Supply going through consolidation, expansion deferred

View on competition from Chinese players, overtake Malaysian manufacturers, overcome supply threat

  • Competition is tough but is good
  • Don’t think Chinese can overtake
  • Malaysian 65% of work market share (nitrile and NR); China has 20% market share; Thailand has about 10%
  • Need support from govt - to not cause a rise in cost of doing business
  • Need foreign workers to compete with Chinese workers
  • Affected by forced labour issues; customers moved orders to Chinese players
  • Expect orders to come back to malaysia

Capex for FY23?

  • past 2.5 years glove production rise too much especially china (+200-300%); Malaysia up by 20-30%
  • Reduce capex and production line
  • China stopped expansion early this year
  • Built factories very fast; built in 3 months (Malaysia takes 2-3 years)
  • When market slowed down they stopped faster
  • Production capacity and utilisation rate reduced to 50% and below (like malaysia)
  • TopG capex lowered significantly (by half)

Recover to pre covid level situation

  • Consumption still improving about 10% year
  • Issue is with supply
  • Reduce supply by cutting down
  • May take 3-6 months to reduce supply to use up inventory -> to normalised
  • Glove price to them has reached the bottom, starting to go up
  • Up by 5% - revenues should increase by 5% (RM15m) per quarter

ASP - up by 5% - which type or broad base, reception on price increase

  • ASP increase more practical
  • tried to increase in March but there was still profit margin, competitors were still able to reduce price
  • In Aug/Sept/Oct are selling below cost
  • Need an initiator to raise prices
  • Need to raise price to cover cost
  • Adds RM50m to revenues
  • Not reducing value of stock anymore

4Q in the red, affect dividend policy?

  • maintain 50% payout ratio subject to conditions
  • Cash flow position
  • Want to preserve cash - halted final dividend

Inventory write down going forward?

  • due to 56% downward ASP trend
  • Less likelihood of this to happen

4Q22 utilisation rate; breakeven rate

  • 40% to 40%+
  • Breakeven utilisation - depend on ASP

Customer response to higher ASP

  • don’t want to lose money
  • Rather let others lose money
  • Willing to lose market share

ASP for 4Q?

  • Average ASP close to US$24
  • Latex at US$22+
  • Nitrile at US$21+

When inventory level will deplete?

  • next 6 months

Future factory automation; how to lower cost and increase margins

  • automation - investments
  • Minimise errors
  • Reduce rejects

First time quarterly loss?

  • yes

Threat from US glove manufacturing

  • Not much threat, cost of production is double Malaysia player
  • Some nitrile glove selling at US$16-18

When do you think volumes will recover?

  • Depends on inventory reducing

Push back from customers on price hike?

  • some resistance
  • Has to pass down some of the costs
  • Labour costs
  • RM1000 ->RM1200 ->1500
  • China, Vietnam all raised min wages
  • Energy costs have also gone up

Cash decelerating, raise funds?

  • 4Q OCF still positive
  • 31 Aug cash position RM950m
  • No plan to raise funds
  • Banking facilities, can raise borrowings

Competitive advantage of malaysia - energy cost

  • heating system has been improved
  • Heat exchange
  • Recovery hot water before discharging to the drain
  • Energy cost improvement
  • Better burner, air flow rate
  • Coal is not a long term solution
  • 2016-17 china banned coal, converted to natural gas

Cost control?

  • manpower costs one of the big chunk of cost
  • Rationalise production facilities
  • Reduce vis natural attrition
  • Foreign workers go back, local workers look for other jobs

Concluding remarks

  • Difficult year
  • Last for a while longer, but not lost
  • Waiting for demand and supply mechanism to reach back to equilibrium
  • New FY, focus on rationalising cost
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Thks for the info.

2022-09-20 17:37

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