TOPGLOV updated its efforts to continuously improve workers’ accommodation as well as uplifting the Withhold Release Order (WRO) with the U.S. Customs and Border Protection (CBP), by completing additional rectification and verification works immediately. A pleasant surprise in the briefing was Mr Andy Hall giving his support and assurance that TOPGLOV is committed and has shown positive improvements in workers’ welfare. BUY with TP of RM6.80 based on 13x CY22E EPS of 52.4 sen. Our target PER is at a 30% discount to normalised 5-year pre-Covid-19 historical forward mean averaging 16-18x.

In an analysts’ briefing, Top Glove updated that it had made positive progress with regards to forced labour issues in terms of remediation fees and workers’ hostels improvements which were further endorsed by Mr Andy Hall (independent migrant workers rights specialist). Top Glove has clarified with US CBP that no new additional issues on forced labour have been discovered. CBP has requested Top Glove to carry out additional rectification and verification work in relation to the earlier findings, which Top Glove is currently working on to address and fully remediate the identified issues expeditiously. The rectification and verification works are to: (i) identity documents retained by recruitment agents to be returned to the workers, which affects less than one percent of its workers, and (ii) remediation for workers who did not manage to come to Malaysia to work due to Covid-19-related lockdowns. Out of the 11 key International Labour Organisation (ILO) Forced Labour Indicators, 6 has been closed or achieved the passing mark. Plans are already in place to rectify the remaining 5 forced labour indicators of which progress have been made.

During the briefing, Top Glove also reiterated its commitment towards continually improving its workers’ accommodations, in accordance to the Act 446: Employees’ Minimum Standards of Housing, Accommodations and Amenities Act 1990. The group has relocated some workers to alternative accommodations in December 2020 and has submitted applications for Certificate for Accommodation (CFA). The approval and issuance of the CFA by the government is being done progressively.

ASP trend is expected to soften albeit at a slower pace on the back of still robust demand. The group highlighted that nitrile glove ASP is expected to decline 3-5% m-o-m or adjusted down to be in line with peers. Post Covid-19, inventory restocking cycle is expected to spur demand coupled with increased usage arising from new users and increased hygiene awareness.

Source: Rakuten Research - 9 Apr 2021