The challenging situation in the glove industry appears to be gradually mitigating, particularly driven by a decline in raw material costs and an increase in sales volume. Many glove manufacturing companies have managed to turn losses into profits, showing a trend of quarterly growth.

Just a few days ago, Malaysia's largest glove manufacturer, Top Glove Corporation Bhd (TOPGLOV), announced its latest quarterly performance. As anticipated, its performance demonstrated quarterly growth. Before delving into TOPGLOV's performance, let's briefly understand the background of the company.

According to the official website, TOPGLOV was established in 1991 and listed on the Malaysian stock exchange in 2001. Initially, the company had only one factory and one glove production line, but now it has manufacturing facilities in Thailand, Vietnam, and China. As of December 20, 2023, TOPGLOV owns 48 factories (41 in Malaysia, 5 in Thailand, and 1 each in China and Vietnam), including 37 glove factories, 2 latex concentrate plants, 3 chemical factories, 1 gamma sterilization factory, 1 glove former factory, 2 packaging material factories, 1 dental dam factory, and 1 face mask factory.

Additionally, TOPGLOV has 788 glove production lines, enabling the company to produce up to 95 billion gloves annually. The range of gloves produced by the company includes latex gloves, nitrile gloves, polyethylene (PE) gloves, vinyl gloves, and more.

Apart from having strong manufacturing bases in Asia, TOPGLOV also has marketing offices in countries such as the United States, Germany, and Brazil, providing high-quality glove products to global markets. As a result, the company serves over 2,000 customers and exports products to more than 195 countries nowadays.

In terms of revenue distribution, based on the 2023 annual report, the majority of TOPGLOV's revenue comes from Malaysia, accounting for approximately 88.29% of the total revenue for the 2023 fiscal year. Thailand is the next significant contributor, accounting for about 6.15%. China and other countries represent approximately 0.39% and 5.17%, respectively.

It's worth mentioning that TOPGLOV is also listed on the main board of the Singapore Exchange and is a component stock of various indices, including the FBM Top 100 Index, FBM Emas Index, FBM Hijrah Shariah Index, FBM Emas Shariah Index, and the Dow Jones Sustainability World Index (DJSI) for Emerging Markets.

Now, let's take a look at the recent quarterly report from TOPGLOV.

Revenue Comparison (YoY -21.98%, QoQ +3.69%)

For the first quarter (Q1 FY2024) ending on November 30, the company's revenue was approximately RM493.46 million, a decrease of about 21.98% compared to RM632.52 million in the same period last year. Although management did not provide an explanation for the year-on-year revenue decline, it can be inferred that it is due to a decrease in glove sales volume and selling prices.

However, compared to the previous quarter, the company's revenue increased by approximately RM17.59 million or 3.69%. This was attributed to an increase in glove sales volume in Malaysia, Thailand, and China. Nevertheless, according to investment banks, the average selling price (ASP) of gloves decreased by about 8.00% quarter-on-quarter to around USD20.00 per thousand gloves. This reflects continued intense market competition.

It is noteworthy that the factory utilization rate for the company increased to approximately 34.00% in this quarter, indicating a gradual rise in glove demand.

Net Profit Comparison (YoY +65.69%, QoQ +87.53%)

Given the company's effective cost optimization measures and the gradual recovery in glove demand, the net loss narrowed by approximately 65.69% to around RM57.71 million in the first quarter (Q1 FY2024) compared to the same period last year.

Compared to the previous quarter, the net loss of the company significantly reduced by approximately RM405.44 million or 87.53%. This reduction was primarily due to a one-off asset impairment loss of about RM392.00 million in the previous quarter (Q4 FY2023).

On the other hand, the company held short-term money market fund investments of approximately RM677.22 million in this quarter. If liquidated, TOPGLOV would be a net cash company.

Outlook

The management maintains a positive outlook for the mid to long term in the glove industry, considering gloves remain an irreplaceable disposable item in healthcare, industrial, and food and beverage sectors.

The company's factory utilization rate is expected to increase to over 40%. Therefore, with the growth in glove sales, increased capacity utilization, cost optimization, and overall efficiency improvement, the management anticipates achieving profitability in the fourth quarter of the fiscal year 2024.

Furthermore, the warming demand for gloves is expected to accelerate customer destocking. Nonetheless, risks such as competition from China and the increase in latex prices due to rising natural gas prices should not be overlooked.

So, dear readers, are you looking forward to the expected turnaround to profitability for TOPGLOV in the future?

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Disclaimer: The above is purely for educational purposes and reflects personal opinions. It does not constitute any buying or selling recommendations.

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