• Top Glove announced that it has formed a JV with US-based glove importer Tronex and Polywel to produce and distribute high-density polyethylene (HDPE) gloves. This collaboration aims to strengthen Top Glove’s position in the global glove market by expanding its product portfolio into HDPE gloves.

• The JV will also leverage the expertise of Tronex in importing and servicing US and international glove brands while Polywel brings its experience in manufacturing HDPE gloves.

• We are positive about this JV as it offers Top Glove exposure to a new range of gloves. However, we believe the impact on earnings will be minimal in the intermediate term.

• Reiterate HOLD call for Top Glove with unchanged TP of RM1.14. Our valuation is based on a FY26F BV/share of RM0.57 and an average of 3-year historical low P/BV of 2x.

New JV to Produce HDPE gloves

Top Glove has entered a joint venture with Tronex (Asia) Ltd and Polywel International Trade Co Ltd to produce HDPE gloves. The venture will be led by Top Quality Glove Sdn Bhd (TQG), a subsidiary of Top Glove, which will hold a 60% stake in the JV company, TG Meditech Sdn Bhd while Tronex and Polywel will each own 20%. The operations are set to begin by December 2024 and will be funded through internally generated funds

Details on JV Partners

Tronex was founded in December 2007 in Hong Kong as a private limited company, specializing in the import and servicing of US and international glove brands for the medical and food service sectors. On the other hand, Polywel established on August 2004 is also a private limited company based in Hong Kong, focusing on the manufacturing and trading of HDPE gloves and related products.

Usage of HDPE Gloves

HDPE gloves are commonly used in industries like medical, food service, and manufacturing for their cost-effectiveness, durability, and chemical resistance. It is ideal for low-risk tasks such as food handling and laboratory work. In comparison, nitrile gloves are more durable, resistant to punctures and preferred for chemical handling and medical use. Meanwhile, latex gloves offer flexibility and comfort but may cause allergic reactions in some individuals. While HDPE gloves are lightweight and suitable for basic protection, nitrile and latex gloves are better for high-risk applications.

Growing Global Demand for HDPE in Gloves and Other Industries

Based on channel check, a study by independent research foresees that the global HDPE market is anticipated to reach USD127bn by 2031 with a compound annual growth rate (CAGR) of 6.1% from 2024 to 2031. This growth is driven by HDPE's various applications across numerous industries. In the gloves sector, demand for HDPE gloves is primarily driven by the increasing focus on food safety and hygiene in the food industry, strict healthcare regulations, and the rising adoption of single-use disposable gloves across diverse end-use industries. Regionally, the HDPE gloves market is witnessing robust growth across North America, Europe, Asia-Pacific, South America as well as the Middle East and Africa.

Great Deals but the Impact is Expected to be Minimal

We are positive about this JV as it offers Top Glove exposure to a new range of gloves. However, we believe the impact on earnings will be minimal. Currently, the food-related gloves produced by Top Glove are primarily TPE (thermoplastic elastomer) and CPE (chlorinated polyethylene) gloves. According to Top Glove 4QFY24’s product mix by sales volume, categories of vinyl, CPE and TPE gloves account for only 4% of total production. Therefore, while the JV presents new opportunities, its financial contribution to earnings is expected to be modest in the short term.

Earnings Revision

No revision is made to our earnings forecast.

Maintain HOLD at TP of RM1.14

Reiterate HOLD call for Top Glove with unchanged TP of RM1.14. Our valuation is based on a FY26F BV/share of RM0.57 and an average of 3-year historical low P/BV of 2x. Overall, we remain cautious on the rubber glove industry’s full recovery to pre-COVID levels, as structural challenges particularly the oversupply from significant Chinese production are likely to persist as major hurdles.

Source: BIMB Securities Research - 25 Nov 2024